Understand the Three Different Types of Life Insurance

Life insurance is one of the most important topics in our industry — and it’s arguably one of the most complicated, too. Picking the right life insurance policy can make a world of difference for your loved ones after you pass. But how do you know what’s the right fit for you?

We’re diving into the three main types of life insurance: term, whole life (permanent), and employment-based. Read on to learn more!

What is term life insurance?

Term policies are the simplest — and most popular — life insurance option out there.

They offer low annual premiums, but your coverage only lasts for a pre-specified amount of time (often 15, 20, or 30 year periods). At that point you need to take out another policy, or your family won’t benefit from any coverage if you pass away.

Term life insurance also has no cash value or savings component.

A policy like this might be right for you if:

• You are a healthy adult
• You’re interested in investing the difference between what your term policy premiums and what your whole life policy premiums would be
• You need a particular amount of coverage to replace your income if you die (for example, if you are supporting a family)

What is whole life (permanent) life insurance?

In a permanent life insurance policy, your coverage lasts as long as you continue to pay your premiums — meaning your family will receive a death benefit whenever you die, even late into old age.

* Many whole life insurance policies expire when you turn 100. Some providers offer extended options, and you typically have the option to exchange your policy as you approach that age.

Your short term premiums are higher with a whole life option, but these policies allow you to accumulate cash value over time. Here’s a bit more on how that works:

• In a whole life insurance policy, the death benefit and premium do not change throughout the years.
• The older you are, the more it costs your insurance company to provide their benefits.
• Charging a premium that increases each year would make sense for insurance companies — but it would make it impossible for most people to afford life insurance as they age.
• Therefore, insurance companies charge a premium that is higher than necessary in the early years.
• When those “overpayments” reach a certain amount, they are available to the policyholder as cash value if they terminate their policy.

A policy like this might be right for you if:

• You are in a high tax bracket and can benefit from an additional investment
• You care for a disabled child or dependent

What is employment-based life insurance?

Employment-based life insurance lasts for as long as you continue to work for the company that is providing the policy. This can be a great job perk — but it’s often not enough.

Here are a few disadvantages of employer-provided life insurance:

• If you change jobs, you’ll need to find another insurance option to protect your family.
• If you lose your job, you could have a gap in your coverage.
• Most employment-based life insurance policies won’t cover your spouse (even if your company’s health insurance does).
• It might not be the cheapest option, and generally gets more expensive the older you get.

A policy like this might be right for you if:

• You are young, healthy, and have no other life insurance policy
• You are single or your spouse isn’t dependent on your income

Have questions about life insurance?

Your Lindow insurance agent is here for you. We offer free life insurance quotes to see what might be a good option for you — and our team is always ready to answer any questions you have.