There are several types of life insurance. While there is overlap with each, there are important distinctions you should know.
Term life insurance is a type of life insurance that promises payment of a stated death benefit in the event that the person it covered passes away within a specified term. When the term expires, however, the policyholder must do one of the following:
- Renew for an additional term
- Convert their policy to permanent coverage
- Or terminate their coverage
The premiums for such plans are determined by the policyholder’s age, state of health, and life expectancy. And while they offer peace of mind and help your loved ones in the event of your passing, keep in mind that term life insurance policies have no additional value than the guaranteed death benefit. They offer no savings feature that may be included with whole life insurance plans.
Whole life insurance, however, pays a death benefit, but also includes a savings feature that allows the policyholder to accumulate a cash value. You may also see this type of life insurance mentioned as either permanent or traditional life insurance.
Similarly, indexed universal life insurance (IUL) gives policyholders the flexibility of adjustable life insurance premiums and benefit from the chance to increase cash value. IUL allows the policyholder to decide the proportion of cash value to assign to either their fixed account or equity-indexed account, offering more flexibility than the previous types of life insurance. These indices include the S&P 500 and Nasdaq 500.
Long-term care (LTC) insurance gives policyholders peace of mind that their plan will cover the cost of nursing home care, home health care, personal/adult daycare once they reach age 65 and older. LTC insurance applies to those with chronic or debilitating conditions that require uninterrupted health care supervision. This type of plan comes with much more flexibility than most public assistance programs.
Additionally, living benefits apply when the policyholder chooses to receive benefits to cover terminal or catastrophic illnesses, often when standard health insurance does not cover the cost of care. These benefits help relatives and loved ones avoid paying for a family member’s care—and both parties avoid potential bankruptcy.
Final expense insurance, however, covers medical bills and funeral costs and is sometimes referred to as burial insurance. As the costs of even modest funerals have risen dramatically in the last several years, this type of insurance can help families afford to cover expenses during their most challenging times.