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Different types of life insurance explained

You may already have life insurance or are interested in it as you know it can provide significant financial protection for you and your family.  It’s essential to be familiar with the four most common kinds of life insurance available, so you get the best coverage you can that suits your needs and your lifestyle. These are the four most common kinds:

  • Term life insurance
  • Permanent life insurance
  • Participating life insurance
  • Universal life insurance

Term life insurance

The point of term life insurance is to provide coverage for a specific period of time – such as five, ten, or even fifteen or twenty years.  Once that term is up, you can choose to renew your policy – but your premiums may go up.

If you die while your term life insurance policy is in effect, then your beneficiaries will receive a tax-free death benefit equal to the amount of coverage you’ve selected. Your beneficiaries can then use that benefit to pay for whatever costs they choose, including debt, a mortgage, tuition costs, and everyday living expenses. 

Permanent life insurance

With permanent life insurance, you will have coverage for your whole life. Your premiums will never go up as you age, even if your health worsens. This means that they may be more expensive than term insurance premiums while you are young but potentially less expensive than term insurance premiums as you age.

As with term life insurance, your beneficiaries will be entitled to a tax-free death benefit after you die. Permanent life insurance also offers a cash value feature. You can use this cash value as collateral for a loan or even withdraw the value – but this will reduce your death benefit.

Participating life insurance

Participating life insurance is another type of permanent life insurance – which offers the additional bonus of letting you earn dividends.  Once you’ve earned dividends, you can either reinvest those dividends to help reduce the cost of your premiums or withdraw them as cash. 

As with all life insurance policies, your beneficiaries will receive a tax-free death benefit to spend as they deem fit.

Universal life insurance

Universal life insurance is also another form of permanent life insurance. Along with a guaranteed tax-free death benefit, it also lets you invest extra money (if you so choose) that can then grow tax-free! With universal life insurance, you can provide for your beneficiaries while also saving extra cash for yourself or your business.

We can help!

If you’re not sure what kind of life insurance is best for you, give us a call today! We can answer any questions you may have about these different kinds of life insurance and what features and benefits are best for you.