What different types of Life Insurance are there?

Question

What different types of Life Insurance are there?

Answer 1

There are two main kinds:  Term Insurance and Permanent Insurance.  Both have a variety of types.

Term insurance is generally lowest cost.  It is called Term because the insurance is in force for a certain time period or term.  At the end of the term the coverage expires.  However, many policies are guaranteed renewable until a certain age (ie age 70 or 80).  

Common term policies are:

10 year term, renewable to age 80(price increase every 10yr)

20 year term, renewable to age 80(price increase every 20yr)

30 year term, renewable to age 80

There is also Term to age 100 - which stays in force until age 100.  Most people consider this to be permanent coverage

Permanent Coverage is designed to be in force for life.  Guaranteed Whole Life is generally the plan with the most guarantees.  There are "variable" or "universal" permanent plans that usually have less guarantees (but more flexibility)

Permanent coverage builds a cash value over time, some policies allow you to make decisions about how the cash value is invested.  Be careful here, you need to be willing to accept some risk.  If your cash value doesn't grow as projected you may have to increase your premiums later in life to keep the policy in force.  This is not an issue with Guaranteed Whole LIfe.

I have been in the business for almost 10 years now and have learned that there is no "best" policy.  It depends on your situation.  

If you have a young family, limited cash flow,and lots of debt, term is likely the best solution as you will get lots of coverage at an affordable rate.

If you have better cash flow and want coverage later in life, permanent may be better for you.

If you are looking to build or preserve an estate - permanent is likely the best.

Please contact a broker or two in your area and discuss your situation.  Be very careful about anyone who claims that one policy is the best.  We all have different needs and there are a variety of policies to meet those needs.