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Different Policy Options

The 4 Basic Types of Life Insurance:

Term Life Insurance

Term life insurance is the most basic type of life insurance policy available. A term life policy covers you for a specific time period and pays a death benefit to your beneficiary only if you die during the term. Terms usually range from 1 year to 30 years or more, and can be renewed at the end of the term period. However, as you age, these premiums may increase.

Unlike other types of life insurance policies, term life policies have no cash value or investment component. Most term life insurance policies are convertible, meaning that they can be exchanged for a whole life or other type of policy without having to take another medical exam.

In terms of value, term life insurance typically offers you the most amount of coverage for the least amount of money.

Whole Life Insurance

Whole life insurance is a life insurance policy that covers you for your entire life and not just for a specific time period or term. As long as you pay your premiums, your policy will remain active so there's no need to renew whole life policies. There is an investment aspect to whole life policies: a portion of your premiums will be invested by the insurer, increasing the policy's value over time.

Whole life insurance policy premiums are based on your age and medical condition at the time you purchase the policy, and they generally remain the same throughout your life. At first, the premium for a whole life policy may seem much higher than a that of a term life policy. However, the premiums for term life policies typically increase as you age, while whole life policy rates remain the same.

Universal Life Insurance

Universal life insurance, also referred to as flexible premium life insurance, is a type of life insurance policy that allows you to vary the amount of premium payments you make for investment purposes. You can choose to pay the insurance premium plus an additional amount that you would like invested. Your investment and returns are placed into a cash value account, which builds the policy's cash surrender value, which is the amount that you expect to receive back when you terminate the policy.

Variable Life Insurance

Variable life insurance is a type of life insurance policy that allows you to allocate a portion of your premium payments to a separate investment account, such as an equity fund or money market account. The cash value of the policy fluctuates based on the market and the performance of the investment. Because of its investment risks, variable life insurance may only be obtained from brokers who are licensed to sell securities like variable annuities and mutual funds.

Riders

Riders are additional benefits that can be purchased and added to your basic life insurance policy. These extra features provide you with more coverage and benefits than you would receive from the basic policy, however you will need to pay an additional premium for these coverages.

Some of the most popular life insurance riders:

Accelerated Death Benefits

Also known as "living benefits", the accelerated death benefits rider may pay all or some of the death benefits to the insured if they are diagnosed with a terminal illness and need money right away to pay for medicine, treatment, and other medical expenses. Typically, the accelerated death benefits are subtracted from the total death benefits that your beneficiary would receive upon your death. Different insurance companies have different rules regarding living benefits, so be sure to check the specific details of this rider with your life insurance provider.

Accidental Death Benefits

Also referred to as "double indemnity", this rider would pay out an additional death benefit if the insured's death is considered to be an accident. The additional amount paid to the beneficiary is typically double what the normal death benefit would be for non-accidental death, which is why it is called double indemnity. This rider is especially important for people who are the only providers of income for their family.

Automatic Premium Loan Provision

If for whatever reason you do not pay your life insurance premium, this rider automatically authorizes the insurance company to take out a loan from the policy's cash value to cover the cost of the premium. This rider can only be used if your policy has sufficient cash value to cover the cost of the loan. The benefits of having this rider would be if you accidentally forgot to pay your premium, you wouldn't have a lapse in coverage.

Family Income Benefit

This rider provides monthly income payments to family members upon the insured's death. These payments are in addition to the death benefits of the policy, and will be paid out for a pre-determined number of years. The advantage to purchasing this rider is that after death, your family will receive steady monthly income payments for the duration that you choose. The beneficiary of the policy can usually choose between receiving monthly payments or one lump sum.

Guaranteed Insurability/Renewal Provision

This rider allows you to purchase additional life insurance at a specified time or date in the future, without having to go through another medical examination. The advantage to having this rider would be if something significant changes in your life, such as your health, marital status, or income level, you will still be eligible to purchase coverage without having to answer any questions regarding your health.

Waiver of Premium

The waiver of premium rider is a policy provision that takes effect if you become disabled. If you experience loss of income due to a disability or injury, you would be exempt from having to make future premium payments until you are able to go back to work. This rider is valuable because it prevents your policy from expiring if you are injured and unable to make premium payments.

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