Life insurance is one of the most secure ways to financially provide for your family after you pass away. Nevertheless, it can be a challenge to decide which type of policy is right for you.
In this article, I will cover everything you need to know about the different types of insurance so you can make a well-informed decision.
First, let’s take a look at the different policies available.
When deciding whether you should purchase term, whole or universal life insurance, you need to keep two things in mind: your budget and your age.
Term insurance, as the name suggests, is coverage that terminates past a certain date (or age). However, compared to universal and whole life insurance, term insurance policies offer more coverage for every dollar spent. There are two types to choose from:
Level-Term Life Insurance:
Decreasing Term Insurance:
Still, the biggest downside to term insurance is that individuals are only covered for a specified period of time. If you die after the policy expires… well, that’s it! Your family receives nothing!
Unlike term insurance, whole life insurance (also known as “permanent life”) pays out a death benefit regardless of when the policyholder dies. As long as you don’t fall behind on your premiums, your guaranteed lifelong coverage that cannot expire even if your health declines. Plus, your premium rate is fixed and can never increase.
Some whole life insurance policies even generate cash value, which you can use as collateral to take out what’s called a “policy loan.”
The only downside, however, is that whole life policies are more expensive than term. Plus, there are many features and benefits to consider, which can be difficult to take advantage of without a professional broker’s help.
Many in the insurance industry consider universal life insurance to be a hybrid term-whole life product. This is because you have the freedom to apply for permanent coverage or to create a shorter policy that expires after a set period.
Plus, universal life insurance typically offers more coverage for your money than whole life and allows the policyholder to adjust their premiums and death benefit.
The drawback being that the underwriting is usually more extensive and potentially a challenge for seniors with poor health.
Term insurance is the best policy to choose when seniors have a “temporary” financial obligation. For instance, credit card debt, loans, or a mortgage since the risk of these problems lasting your whole life is quite low.
Term insurance policies can also be adjusted to suit your specific needs. For instance, seniors entering retirement who have yet to pay off their mortgage should consider a "decreasing term" policy. Within this plan, the death benefit amount declines to match the amount left outstanding on the policyholder's mortgage.
As the name suggests, whole life insurance is perfect for seniors looking for coverage that lasts their whole life since you can never outlive a whole life policy. As such, whole life insurance suits long term responsibilities such as post-death expenses (estate tax, funeral costs) and even a dependent adult child's care.
Plus, whole life insurance is the easiest to qualify for, with no medical exams necessary. There are also guaranteed acceptance whole life plans perfect for seniors with existing health issues.
Universal life insurance offers similar benefits as whole life and therefore can be a good choice for seniors looking to cover funeral costs or leave money behind for their families. The only notable difference is within the underwriting. Universal life insurance tends to be more challenging to qualify for and, as a result, is best for seniors in good health.
However, unlike whole life insurance, universal life allows consumers to adjust their death benefit and pay any amount in premiums (within a certain limit). This is useful for seniors facing uncertainty around their finances. You can increase the death benefit amount if your circumstances change or reduce the amount to lower your premiums.
Author: David Duford owns Buy Life Insurance For Burial, a virtual insurance agency helping seniors source quality final expense life insurance coverage. He is the author of 3 best-selling insurance sales and marketing books, including “The Official Guide To Selling Insurance For New Agents, “The Official Guide To Selling Final Expense Insurance,” and “Interviews With Top Producing Insurance Agents.” David is also a YouTube Influencer in insurance sales with more than 17,000 subscribers and more than 1.7 million total views.