Insurance

All information below is taken directly from a Forbes article: 9 Types Of Life Insurance Policies

• For most people, the two essential types of insurance that you should consider are Term Life and Long Term Care Insurance

• Term Life Insurance  

  • • Most people purchase a 15 or 30 year Term Life Insurance policy when they purchase a home

    • The term is based on the length of your mortgage loan

    • Should your spouse, significant other, or you die before your mortgage is paid off, this insurance should cover the remaining cost of your loan

    • If you have a 30 year/$500,000 mortgage loan, you should take out a $500,000 policy for 30 years or something similar (e.g. $400,000 for 30 years). 

    • This will help to pay off the remaining loan so that your loved ones can retain the home 

    • It is cheap and offers great protection in the event of the unfortunate

• Long Term Care Insurance

  • • This offers you long term care should you need:

    • Assisted living

    • Nursing home care

    • Home health care

    • Adult daycare

    • Personal care

    • Custodial care 

    • These can be very expensive should you need services above and beyond medical coverage

The remainder of the insurance options are not necessary, but might provide value to the holder of the policy for different reasons. While some point out the benefits of cash value and death benefits, the initial cost of the other plans can be very expensive and your money may be best spent investing into an index for long term returns.

Term Life Insurance

The basics: Term life insurance insurance has a specific end date for the level term period, when rates stay the same. After this period you can renew the policy, but at higher rates each year. Choices of coverage lengths are generally 5, 10, 15, 25 or 30 years. It’s the cheapest way to buy life insurance because you’re buying only insurance coverage and not paying for cash value life insurance.

Who is it good for: Term life insurance is ideal for people who want life insurance coverage for a specific debt or situation. For example, some people buy it to cover their working years as income replacement for their family in case they pass away. Some people buy term life to cover the years of a mortgage or other large debt.

Downside: If you still need coverage after the level term period expires, you could find the renewal rates to be unaffordable. And buying a new life insurance policy could be extremely pricey based on your age and any health conditions you’ve developed.

Whole Life Insurance

The basics: Whole life insurance can provide coverage for the duration of your life. An account within the policy builds cash value over time by using part of your premium payment and adding interest. A policy will have built-in guarantees that the premium will not increase, the death benefit remains the same, and the cash value will earn a fixed rate of return.

Who is it good for: Whole life is suited for people who want lifelong coverage and are willing to pay for the guarantees provided by the policy.

Downside: Because of the guaranteed features, whole life insurance is one of the more expensive ways to buy life insurance.

Universal Life Insurance

The basics: Universal life insurance can be hard to understand because there are a few varieties and with very different features. Universal life (UL) can be cheaper than whole life insurance because it generally doesn’t offer the same guarantees.

With some forms of universal life you can vary premium payments amounts and rejigger the death benefit amount, within certain limits. UL policies often have a cash value component.

Who is it good for: Universal life insurance can be good for someone looking for lifelong coverage. Some varieties of UL are suited for people who want to tie their cash value gains to market performance (indexed and variable universal life insurance).

Downsides: If cash value is your main interest, not all UL policies guarantee you’ll make gains. And if you’re interested in flexible premiums payments, you have to stay on top of your policy’s status to make sure that the policy’s fees and charges don’t deplete your cash value and cause it to lapse. Understand what’s guaranteed within a UL policy and what isn’t.

Variable Life Insurance

The basics: Variable life insurance offers permanent coverage with cash value. The policyholder chooses the sub-accounts in which to invest and those decisions determine how much the cash value account grows. You can also lose money based on the performance of your sub-accounts.

Who is good for: People who want lifelong coverage and who seek to take an active role in their life insurance investments. Those with variable life insurance also shouldn’t mind taking on risk.

Downsides: You can lose money on your death benefit and cash value if you choose the wrong investments.

Burial and Funeral Insurance

The basics: You may see this kind of policy called burial, funeral or final expense insurance. No matter the name, it’s usually a small whole life insurance policy that’s intended to pay only for funeral costs and other final expenses. Burial insurance is often offered as a policy that you can’t be turned down for and that doesn’t require a medical exam.

Who is it good for: These types of policies are generally for people in poor health who don’t have other life insurance options and who need insurance for funeral expenses.

Downsides: Burial insurance policies are expensive, based on the amount of coverage you get.

They also have a safeguard for the life insurance company: Your beneficiaries won’t get the full death benefit if you pass away within two or three years after buying the policy. Check the policy’s timeline for these “graded death benefits.” Your beneficiaries might receive only a refund of the premiums you paid in, plus some interest.

Survivorship Life Insurance

The basics: These joint life insurance policies ensure two people under one policy, such as a husband and wife. The payout to beneficiaries is made when both have passed away. You may see them called second-to-die life insurance, but for understandable reasons the industry is moving away from this name.

Survivorship life insurance can be less expensive than buying two separate life insurance policies, especially if one of the people has health issues.

Who is it good for: Survivorship policies can be beneficial in estate planning when the life insurance money is not needed by a beneficiary until both of the insured people have passed away. Survivorship life insurance might be used to fund a trust, for example. It’s also suited for high net worth couples who want to provide money to heirs for estate taxes. Or it could be used by a couple to provide a donation to charity.

Downside: If two spouses are insured and one would suffer financially if the other passed away, this is not the right policy type. The surviving spouse does not receive any life insurance benefits. The payout is only made when both have passed away.

Mortgage Life Insurance

The basics: Mortgage life insurance is designed to cover only the balance of a mortgage and nothing else. This policy type is different from the life insurance types above in two major ways. First, the death benefit is paid to the mortgage lender, not a beneficiary that you choose. Second, the payout is the balance of the mortgage, or partial balance if that’s what you insured.

Who is it good for: Mortgage life insurance is intended for people who are primarily concerned about their family being burdened by the mortgage if they passed away. It can also be appealing to someone who doesn’t want to take a medical exam to get life insurance.

Downside: This type of policy won’t provide financial flexibility for your family.

If you’re looking for life insurance to cover a mortgage or other debts, you’re better off with term life insurance. You can choose the term length and amount, and provide more than just mortgage money to your family. Your family can use a payout for any purpose. They may decide to use the money elsewhere.

Credit Life Insurance

The basics: Like mortgage life insurance, this insurance covers a specific debt. When you take out a loan you might be offered credit life insurance. The payments can usually be rolled into your loan payments. The life insurance payout is the balance of the debt and it’s paid to the lender, not your family.

Who is it good for: If you’re concerned about how your family would pay a certain debt if you passed away, credit life insurance might look appealing and convenient. It can also be attractive because there’s no medical exam required to qualify.

Downside: Credit life insurance is very narrow and doesn’t allow financial flexibility in the future. You’re probably better off with term life insurance, which you can use to cover many concerns, from debt to income replacement to funeral expenses. A broader policy like term life will give your family more financial options if you pass away.

Supplemental Life Insurance

The basics: The life insurance you may have through work is supplemental life insurance, also known as group life insurance. It sets rates based on the group, not the individual.

Who is it good for: Because usually it’s free or inexpensive, group life insurance is a good value. It’s good as supplementary coverage to your own individual life insurance policy.

Downside: If you lose the job you generally lose the life insurance, too. That’s why it’s best to have your own life insurance that’s not tied to the workplace. Plus, on your own you can buy higher amounts of insurance.

Long-Term Care

Long-term care insurance is a private insurance plan that helps pay for services and support that are not usually covered by health insurance, Medicare, or Medicaid. These services can include:

• Assisted living

• Nursing home care

• Home health care

• Adult daycare

• Personal care

• Custodial care 

Long-term care insurance can help people who are unable to live independently due to a chronic condition, disability, or disorder like Alzheimer's disease. It can help ensure that the policyholder doesn't have to rely on government welfare programs or deplete their life savings to pay for care. 

The cost of a long-term care insurance policy is based on several factors, including:

• The policyholder's age when they purchase the policy

• The maximum amount the policy will pay per day

• The maximum number of days or years the policy will pay

• Any optional benefits selected 

Premiums for long-term care insurance tend to increase with age. For example, premiums may increase 2–4% each year for people in their 50s, but 6–8% each year for people in their 60s. 

When considering long-term care insurance, it's important to read the policy carefully to understand the benefits, coverage limitations, and waiting periods. It's also recommended to consult with a financial advisor, attorney, or insurance expert to review the policy. 

Compare Different Types of Life Insurance

Let’s take a look at the multiple types of life insurance to help find the right policy for you.

What’s the Best Type of Life Insurance?

The type of life insurance that’s best for you depends on why you need coverage. Someone who wants to make sure their loved ones have money to pay for a funeral requires much different life coverage than a person who needs it to pay off a $300,000 mortgage.

Here’s a look at the best life insurance based on your needs.

Types of Life Insurance By Underwriting

Insurance companies often conduct an underwriting process to gauge a person’s health and risk. That process results in whether an insurance company insures the applicant and how much to charge for premiums.

Here are the different types of life insurance underwriting:

Fully underwritten

• Medical exam required

• Lengthy application process with multiple questions related to health, family history. lifestyle and hobbies

• Cheapest policies since life insurance company does its due diligence to check on the person’s insurability

Guaranteed issue

• Doesn’t require a medical exam

• No health questions asked

• Often the most expensive policies

Simplified issue

• Doesn’t require a medical exam

• Applicants must answer a handful of health-related questions and a “yes” answer could result in denial

• Insurance company usually uses algorithms that leads to quick approval decision

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