EXPLAINED: Types of Life Insurance

Want to buy a life insurance plan? We know it’s not an easy decision. But we can help you find the right one for your needs and budget. Does the protection of term life insurance sound right for you, or would whole life insurance be a better choice? Find out what type of life insurance plan will best fit your financial needs—and help support your family if the unexpected happens.

Term Life Insurance

Term life insurance is the simplest, most accessible type of life insurance available. This type of insurance plan lasts for a certain number of years before it expires, and the amount your family receives need not be paid all at once (it can be paid out over time). The best part about this type of insurance is that they are usually a lot more affordable in comparison to other types of life insurance plans.

Whole Life Insurance

In contrast to term life insurance, whole life insurance, since it is a type of permanent life insurance, does not expire. It essentially has two components: the cash value and the death benefit. The cash value is an investment-like savings account (which is tax-deferred) that is included as part of the policy. The cash value will accrue interest at a specific rate. Each month, a part of the premium you pay will go into the cash value of your policy, offering you a guaranteed rate of return. The policy’s cash value will grow over time, and you can withdraw from it and use it as a loan. Whole life insurance plans usually cost anywhere between 5 and 15 times the price of a term insurance plan.

Universal Life Insurance

Universal life insurance, similar to a whole life insurance plan, has a cash value and a death benefit. So, any premium you make will be split between the two. However, there is a key difference: With universal life insurance, you can change the death benefit and premium amount without having to purchase a new policy. You only need to pay a pre-specified minimum premium to keep your insurance plan in force. And, if you have enough cash value accrued, you can skip your premium payment and use the cash value to make the minimum payment.