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Tuesday, October 9, 2018

8 TYPES OF LIFE INSURANCE POLICIES-WHICH POLICY IS BEST FOR YOU?
October 09, 2018

8 TYPES OF LIFE INSURANCE POLICIES-WHICH POLICY IS BEST FOR YOU?

We’re on a mission to help you find the best life insurance provider for you. Every situation and family is unique, so you shouldn’t settle for anything less than a customized approach to your life insurance.
While there are many hybrids and different types of life insurance options, we have focused on the core policies (including term life, whole life, guaranteed universal, variable life insurance, and more). Our list breaks down eight of the most common life insurance types, as well as some recommendations on what might be the best product from among our picks for the best life insurance companies.

Term Life vs. Whole Life

In general, there are two main types of life insurance policies: term life and whole life.
  • Term life is a policy that covers you for a set period of time, typically, 10, 15, 20, or 30 years. Once the policy expires, so does the coverage.
  • Whole life policies provide permanent coverage that last a lifetime as well as guaranteed premiums and a guaranteed cash value.

The different types of life insurance policies:

  1. Term Life Insurance
  2. Whole Life Insurance
  3. Guaranteed Universal Life Insurance
  4. Variable Life Insurance
  5. Equity Indexed Life Insurance
  6. Guaranteed Issue Life Insurance
  7. Accidental Death Insurance
  8. Simplified Issue Life Insurance

Quick Snapshot: Two Main Types of Life Insurance

Before we go into nitty-gritty detail, there’s one major thing you need to know.
There are two main types of life insurance: term life insurance (term assurance) and whole life insurance (permanent life insurance):
  • With term insurance, your life insurance policy covers you for a certain period of time. The life insurance policy expires after a number of years. Typically, the life insurance premiums for term insurance is less expensive than whole life insurance.
  • With whole-life insurance, your life insurance doesn’t expire and covers you as long as you’re paying your premiums. A whole life insurance policy will typically be more expensive than a term insurance policy and the value may change over time.

How to Find the “Best” Life Insurance Policy

Just to be clear, there is no one “best” life insurance policy because there is no ideal one-size-fits-all life insurance. Each individual life insurance plan should be tailored to the person and the beneficiaries. A life insurance policy should be focused on using the most appropriate type of life insurance for the insured, looking at factors including coverage and life insurance premiums. That’s why TermLife2Go looks at multiple factors and insurers across the board. Continue reading or give us a call today for a free life insurance consultation.
When you’re thinking about all the different types of life insurance available, you should also consider the company you will ultimately apply with. We focus on the niche underwriting offered by each of the companies we work with.
For example, finding diabetic life insurance requires that you apply with the more diabetes-friendly companies. Failure to do so may result in higher premiums or being declined altogether.
What are your life insurance plans? Knowing what type of life insurance you need is only half the battle. The other piece of the puzzle is knowing which company offers the best value for that life insurance type.

Life Insurance Definitions

Life insurance can be a bit confusing, but once you have a grasp on the general terms, it’s easier to navigate the details of life insurance premiums and providers.
Policy: a legal contract between you and the insurer. It defines the details of the life insurance coverage, names the parties involved, and all the terms, fees, costs, etc.
Owner: the owner of the policy is the one who is entering into the contract with the carrier for the insurance coverage.
Insured: the person whose life the policy is on. The insured person is often, but not always, the owner.
Insurer: the insurer is the life insurance company who is offering the policy. The insurer is also known as the carrier, provider, or company.
Beneficiary: the policy owner names a beneficiary of the death benefit. You can name multiple beneficiaries, contingent beneficiaries, and even tertiary beneficiaries. Upon the insured’s death, the beneficiary would receive the life insurance proceeds income tax free.
Death benefit: the death benefit refers to the lump sum payout form the insurer to the beneficiary when the insured dies. There are other options apart from a lump sum, including annual payments, monthly payments, or a lump sum and monthly payments. A death benefit can remain level, increase along with the cash value, or remain level with the return of premium, minus withdrawals.
OK, now that we have some definitions to help guide us, let’s take a look at the different policy types available.

Term and Whole Life Explained

The two main types of life insurance policies are term life vs permanent life insurance. Within the two categories are a number of other products. Let’s start with the most popular policy, term life.

Term life insurance 

Click to view our sample term life insurance rates by age chart to see how affordable term life can be.
What is term life insurance?
Term Life Definition: Term life provides pure death benefit protection for a specific period of time (typically 10, 15, 20, or 30 years). The specific period of time is the “term” of the policy. Once the term ends the life insurance policy will renew on an annual basis. Most term life insurance policies will allow the owner of the policy to renew until age 95.
But beware, most life insurance policies renew at an increased premium. Many premiums increase as much as 300% but, there are some life insurance companies whose term product only increases a small amount, while some companies keep the premium the same but decrease the face amount.
There are two types of term policies: level term insurance vs decreasing term life insurance.With a decreasing term insurance the death benefit goes down over time, even though your policy premiums stay the same.
Alternatively, level term life insurance offers fixed life insurance premiums and a fixed death benefit for the term of the coverage (the term refers to how long the coverage lasts).
Finally, there is also level term life that offers a fixed death benefit, but the premium goes up every five years. The main takeaway here is read your policy.
Ideally, you want to lock into the maximum years you need instead of relying on the renewal option. For those term life policy holders that decide down the road they want to keep their life insurance, it is best to exercise the policy’s conversion option.
Most term life insurance policies include a conversion option rider allowing the owner to convert to a permanent policy with no proof of insurability, i.e. no health screening. The conversion option will change a term policy into a whole life or universal life policy. The premium will increase but the rate class is based on the rate class you originally qualified for the term policy at and not based on your current health status.
This is a huge benefit for someone who has a term policy that comes down with an illness and cannot get a new policy or additional life insurance. Simply convert the term policy to a universal life or whole life policy and keep the insurance for the remainder of your life.
Typical term lengths available: 10, 15 20 and 30 year. However, some companies offer annual renewable term (ART), i.e. 1 year. There is also the option for 5 year and 25 year terms, but fewer companies provide those option. There is also a company that offers years 16, 17, 18, etc…all the way to 30, so you can tailor the policy down to the specific year.
Many term policies include a terminal illness rider or accelerated death benefit which allows a portion of the coverage to be taken out early for the insured’s use due to a diagnosis of being terminally ill.
Return of Premium Term Life Insurance is also available with up term lengths of 20, 30 and even 35 year terms. Once the policy ends and assuming you don’t die, the premiums are returned to you. Return of Premium (ROP) life insurance is a rider added to term life insurance. It works by returning all premiums paid by the policy owner over the life of the term.
For example, a 30 year term life insurance policy with a return of premium rider for a healthy 40 year old male would run around $135 a month. After 30 years, the total premiums paid would amount to $48,600. Upon the end of the term, the insurer would pay out the full amount of premiums paid. This is a great option for those who desire to make their life insurance a forced savings account, with the payout upon the end of the policy or when the insured dies.
Term life insurance is the most well-known type of life insurance policy and the most affordable. Most financial planners, such as Dave Ramsey and Suze Orman, will recommend you buy term life insurance instead of whole life insurance and invest the difference. However, this is general and not specific advice as each client has his or her own needs and circumstances.
What product is best for you will depend on a myriad of things, including if you are a business owner (such as key man life insurance, or for funding a buy-sell agreement with life insurance), planning for your estate, or simply looking to cover your income if you were to die prematurely.
The team at TermLife2Go would be happy to go over your specific needs and help you make the right decision for you based on your unique circumstances. We work with dozens of top rated companies and will be able to align the right company to your specific health and lifestyle.

Types of Permanent Life Insurance

Now that we’ve covered term life policies, let’s discuss permanent life insurance in more detail. There are four main permanent life insurance types: Whole Life, Universal Life, Indexed Universal Life and Variable Universal Life.

Whole life insurance

What is whole life insurance?
Whole Life insurance Definition: It’s a permanent life insurance policy that provides death benefit protection for your entire life. Generally, whole life insurance offers guaranteed fixed premiums, guaranteed cash value accumulation, and guaranteed protection until the day you die. Since whole life insurance will be with you until that inevitable day, it typically has higher premiums than other common types of life insurance.
Whole life also the owner to borrow against the cash in the policy. However, borrowing from your cash reserves may not be a good financial decision. Not only will it diminish your cash value in the policy but the life insurance company charges you interest on the money you are borrowing.
Whole life insurance is great for retirement planning, such as using the funds in your cash value policy as collateral for life insurance loans to invest in various assets, a la infinite banking. The cash value can be borrowed against to take advantage of unique buying opportunities, such as real estate back in 2011 or other passive income ideas.
But whole life is not the recommended choice for a mom or dad of a young family who needs to make sure the children are provided for in the untimely death of a parent. In that case, term life would provide better leverage and bang for your buck than whole life.
However, you may want to consider term life with a conversion option from among the best whole life companies so that you can always convert to a permanent policy down the road. Alternatively, whole life with a term rider is another great option for you if you want to lock into lifelong coverage but need more protection than a small whole life policy.
Consult with a life insurance expert at TermLife2Go to learn more about the best life insurance option for you by calling us today at 888-234-8376.
LTC Insurance
Finally, long-term care whole life insurance is another great option to consider. You can choose a linked benefits solution or whole life with long-term care rider.
So why is long-term care insurance important?
Long-term care insurance provides a cash benefit or reimbursement benefit (sometimes both) if you qualify. The normal requirements are your inability to perform 2 of 6 activities of daily living (ADLs). Upon qualifying and after an elimination period, you begin to receive monthly income benefits for the benefit period outlined in your policy.
The primary benefit of an LTC policy is the ability to afford long-term care, such as in-home care, nursing home care, or care in an assisted living facility. With the rising costs of long-term care, you can also add an inflation rider to your coverage so that your benefit amount increases over time.
A secondary benefit of long-term care insurance is that your beneficiary’s future inheritance is not wiped out due to your long term care expenses.

Term Life vs Whole Life Insurance Example

Suppose you have $50 discretionary income reserved for life insurance. If you are a 35-year-old male in good health, you will pay around $37-$52 a month in premiums for $1,000,000 of life insurance on a 20-year fixed term. However, your will pay the same premium for whole life or guaranteed universal life for a measly $100,000 in coverage. Now ask yourself, which of these policies is best for a father or mother of three, where all the kids are under the age of 10? Finding the “best” life insurance policy really does depend on your unique situation and family needs.

Universal Life Insurance

Part of the permanent life insurance family are universal life policies. Universal life insurance comes in three flavors: Guaranteed UL, Indexed UL, and Variable UL.
You may also want to visit our article covering the carriers that we consider to be among the best universal life insurance companies and policies.

Guaranteed Universal Life Insurance

  • GUL policies come in several options: to age 90, 95, 100, 110, 120 or 121 (depending on company).
  • Only the GUL to 120 or 121 is guaranteed to last the rest of your life, although most will not outlive a GUL to age 90.
  • Unlike Whole Life or other types of UL products, GUL has minimal cash value accumulation
  • Typically the lowest cost permanent life insurance.
  • Many riders available, included accelerated death benefit, critical illness and chronic illness, long term care rider and disability riders.
What is guaranteed universal life?
Guaranteed universal life insurance is a low priced permanent policy, with a flexible death benefit period that can be tailored to last until age 90, 95, 100, 110 and 121. It is best described as a term/whole life hybrid. This type of life insurance will build minimum cash value and the coverage ends at the age specified.
The GUL policy to 121 builds some cash value and is worth the face amount of the death benefit at age 121. The other options to age 90, 95, and 100 end at those respective ages and there is nothing left. Therefore, plan accordingly.
A policy to 121 is the only “sure” bet when it comes to a Guaranteed Universal Life policy. And no medical exam guaranteed universal life insurance policies are available. A no medical exam policy approval is fast with some approvals in 15 minutes. See, Life Insurance: Exam vs. No Exam 
A great universal life policy for estate planning purposes is a second to die policy. A second to die policy pays out on the death of the second spouse and the premiums are generally a lot less than life insurance on just one person.
We also like guaranteed universal life when funding an irrevocable life insurance trust because it offers permanent protection with lower premiums than whole life.

Variable Universal Life Insurance

What is variable universal life?
Variable Universal Life (VUL) is a life insurance policy type in which the face value fluctuates depending upon the value of the dollar, securities, or other equity products supporting the policy at the time payment is due.  Warning: VUL is not for the faint of heart. Depending on the investment vehicle, the product is tied to this insurance type financial product can make or break a portfolio.
Variable Life Insurance is great when the market is heading up as this protection can provide a huge boon. However, when the market is trending lower, an investor might not be able to keep up with the increased premium payments due. VUL is a great addition to a  diversified portfolio but should not be your first type of life insurance choice.

Equity Indexed Universal Life Insurance 

What is indexed universal life?
Although not right for everyone, we do believe IULs are a good option for some. We created the following articles for those interested in investigating if IUL is right for you.
IULs provide cash value accumulation, guaranteed minimum returns, and protection from market downturns.

Single Premium Permanent Coverage

Another permanent option is Single Premium Whole or Universal Life, where you purchase a paid up policy in one lump sum. The only drawback of single premium life insurance is it does not qualify as cash value life insurance under IRC 7702. As a result, it loses some of the tax advantages associated with cash value life insurance.

Guaranteed Issue Life Insurance

What is guaranteed issue life insurance?
Guaranteed Issue Life Insurance Definition: Guaranteed issue is a quick and easy type of life insurance. It is guaranteed issue life insurance, so everyone within the required age bracket will qualify for this coverage. Typically, the amount you can qualify for will be from $5,000-$30,000 depending on the carrier.
Most guaranteed issue life insurance policies come with a graded death benefit limitation which provides that the full death benefit will only be paid for natural causes after the policy has been in force for two or more years.
Caution: that means that if the primary insured dies before the two year graded death benefit limitation has ended, the policy will not pay out for natural causes. Most guaranteed issue policies will pay out the full amount in the first two years for an accidental death. And most have a 5-10% return on top of premium paid if the primary insured dies in the first two years of natural causes.

Accidental Death Insurance

  • Covers accidental deaths: trips and falls, poisoning (accidental), acts of God (fall into large hole that opened in ground, etc…), does NOT cover suicides.
  • Does NOT cover natural death, i.e. heart attack, stroke, cancer, etc.
  • Good policy option for specific individuals who do not qualify for anything else.
  • Double indemnity if on a common carrier (plane, train, taxi, boat- commercial, not private).
  • For more see our Accidental Death Insurance Review
What is accidental death insurance?
Accidental Death Insurance Definition: an insurance policy that pays benefits to the beneficiary if the cause of death is due to an accident. However, it’s important to point out that this is NOT life insurance. Read the fine print on an Accidental Death policy. The policy only covers accidental death, meaning that it does not cover sickness (heart attack, stroke, cancer), suicide, or what the insurer considers “reckless activities” such as skydiving, bungee jumping, and/or parachuting/skydiving. It works well as a rider on a regular types of life insurance policies, but it should not be your only coverage, unless you have no other options available.
Simplified Issue
What is simplified issue life insurance?
Simplified issue refers to the concept of issuing a policy quickly due to less underwriting.  These policies will typically not require a medical exam, but will have health related questions to determine the applicant’s overall health.
Simplified issue no medical exam life insurance is available. A simplified issue policy is great for someone who does not want a medical exam either, due to fear of needles, or due to a family history of high blood pressure or cholesterol.
At TermLife2Go, we like to say, “If you don’t know, don’t test.” Instead, choose simplified issue coverage and get the policy locked in place. Then you can take an exam and see how your results turn out.
Simplified issue is also a great choice if you believe you may have a health issue but your doctor has not confirmed it. Sometimes it is better to take a no exam life insurance policy than risk getting denied on a fully underwritten policy.

Accelerated Underwriting

What is accelerated underwriting?
Accelerated underwriting life insurance is a fancy way to differentiate between simplified issue policies and the more substantial term and permanent coverage available. Accelerated underwriting is the wave of the future and involves automated underwriting using big data to insure people much faster than the old traditional fully underwritten process.
Fully Underwritten
What is fully underwritten life insurance?
Fully underwritten life insurance policies requires a medical exam. With this type of life insurance product the examiner typically comes to your home and checks your height and weight and takes a small blood and urine sample. See What do life insurance companies test blood and urine for?
Your lab results are then processed and the life insurance carrier offers you a policy based on your results, among other factors. In some cases, a physician’s statement may be collected if the carrier feels more information is needed.
For healthy individuals the typical time it takes for the life insurance carrier to make an offer can be as fast as 48 hours. However, the normal time for a healthy individual is 2-4 weeks. For someone not as healthy it can take 4-6 weeks or longer.
The one advantage with a fully underwritten policy is that for those who are healthy the savings can be substantial on both term and permanent insurance.
No Medical Exam
What is no exam life insurance?
No exam policies do not require a life insurance health exam. Often, the difference in cost between a medical exam policy and a no medical exam policy are small.
A no medical exam policy helps a client avoid some of the most common reasons for policies coming back at a higher rate class than applied: high cholesterol and high blood pressure. If you are concerned about your blood work then paying a few additional dollars might very well save you money once your lab results come back.
If you’re interested in a no medical exam life insurance policy, feel free to get in contact with us for a customized approach to your life insurance, or read our piece, “Top 10 Best No Medical Term Life Insurance Companies in 2018.”
These are a few of the many different types of life insurance policies available. Do you have a life insurance plan in place? If you would like to go over what options are available to you, just give us a call today at 888-234-8376 to see what we can do for you!
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