The term life insurance may conjure up images of frightening commercials where someone’s life flashes before their eyes as they lay dying in a hospital bed, but life insurance isn’t just designed to cover the costs of your funeral—it can provide protection in case you die prematurely, whether from a car accident or an illness.
However, there are many different types of life insurance, so it’s important to understand what each type covers and how it works, as well as its advantages and disadvantages.
What is life insurance?
Whether you’re looking to cover a mortgage, a car loan or your own life, life insurance can help meet your financial goals.
But what exactly is life insurance? And how does it work to protect your future—and that of your family—in case something happens to you?
In short, there are two kinds of life insurance: Term Insurance and Whole (or Permanent) Life.
Although they are similar in some ways, these policies have major differences when it comes to things like interest rates, annual cost premiums and death benefits.
That’s why it’s important to understand both types before purchasing either one.
Let’s start with Whole (or Permanent) Life insurance. Essentially, these policies provide both life insurance and a savings component to help you achieve your long-term financial goals.
This means that premiums are higher than they are for Term policies, but benefits are greater as well.
With Whole (or Permanent) Life insurance, you can choose an amount of coverage that matches your specific needs.
Two types of life insurances
Term life insurance and permanent life insurance. Term insurance lasts for a set period of time—five years, 10 years, 15 years—and pays out only if you die during that time period. Permanent or whole-life coverage is more expensive than term insurance but it also offers tax advantages over time.
For example, you can build up cash value in whole-life plans and access that money before retirement age; term life does not offer these features.
No matter which type of plan you choose, your premiums will remain constant for as long as you have your policy, regardless of whether or not you get married or have children.
Your choice of plan will depend on your financial goals, but it’s also important to consider how much insurance you need.
When determining how much life insurance to purchase, you should think about both how much money your family would need after your death as well as what would happen if a family member was unable to work. These plans do not have an exclusion for pre-existing conditions—anyone can buy a policy no matter what their medical history is.
How does it work?
Because life insurance doesn’t kick in until you die, some people wonder if life insurance is really worth it.
The truth, however, is that it’s a fantastic way to make sure your family has money while they grieve. Sure, most people don’t like to think about death—but when it comes down to it, there are few other things you can do that will be as valuable for your loved ones after you pass away.
Of course, life insurance isn’t right for everyone. If you have debt or other priorities before making a premium payment on coverage, then perhaps buying a policy isn’t wise at that time.
If you’re fortunate enough to be debt-free, however, you can use life insurance as a smart way to protect your family financially.
You’ll get one of two types of coverage—term or permanent—and both are designed to fill a different purpose.
Term life insurance provides temporary coverage that lasts for a set period of time (often 10, 20 or 30 years), while permanent insurance offers coverage that never expires.
Where can I buy life insurance?
You can buy life insurance from a financial institution or brokerage, an insurance company or directly from an independent agent.
Keep in mind that each of these options comes with advantages and disadvantages. For example, buying directly from an independent agent gives you access to more policy options but may be slightly more expensive than buying through a broker or bank.
On the other hand, certain types of policies—namely whole life—are only available through licensed agents or insurers. You’ll want to do your research to find out which option fits your needs best.
One of these policy types, whole life insurance, may be a good fit if you want to ensure that your loved ones will be protected no matter what happens.
Whole life insurance offers a level premium for your entire lifetime—this means that even if you get sick or face other health-related expenses later in life, your premiums won’t increase.
How do I get term life insurance quotes online?
You can get term life insurance quotes online by simply going to one of many websites that offer it.
These sites take your information, such as how much coverage you want, how long you’d like to be covered for, whether or not you smoke, etc., and use that information to match you with a list of approved companies.
Term life insurance quotes can be pretty easy to find if you know where to look.
Another thing to look out for when you get term life insurance quotes online is whether or not it’s going to be a hard pull on your credit report.
Some companies can do a soft pull, which will simply check your information against what they already have on file.
Types of plans offered by insurers
There are two main types of life insurance plans offered by insurers: term life insurance and whole life insurance.
With a term plan, you pay a set premium for coverage for a specific period of time, generally 10 to 30 years.
If you die during that period, your beneficiaries will receive your coverage amount minus any unpaid premiums.
There are no cash value benefits with term plans. On the other hand, with whole life insurance policies you can invest money in an account (the cash value) while enjoying guaranteed protection against death in exchange for paying a premium.
Other life insurance plans include universal life, variable life, and variable universal life.
All of these policies offer cash value growth potential, though you’ll have to pay additional premiums for them.
Tips for buying your first policy
The main purpose of life insurance is to provide financial security for your family in case you die prematurely.
To do that, a life insurance policy provides a cash payout, known as a death benefit, to your beneficiaries.
A standard life insurance policy will pay out anywhere from $50,000 to $5 million or more, depending on how much coverage you purchase.
If you need to use your life insurance money right away (for funeral expenses or mortgage payments), whole life policies are not an option; they are designed so that you receive a stream of income over time instead of receiving one lump sum at some point in time.