What are the different types of life insurance? What are the pros and cons of both?

Question : What are the different types of life insurance? What are the pros and cons of both?
Which life insurance companies do you recommend? How young is too young for your child? He’s 1… I’d like to leave my family with the security and without the stress of “money” when I die, but I don’t know where to start. Thank you in advance!
types of life insurance

Best answer:

Answer by darthdubious_1
Well, there’s term life, and whole life. Term life has alot of restrictions and is more expensive the older you get. Whole life can be paid in full and borrowed against, and the younger you are the more coverage you can get. As far as your child, I heard about Gerbers putting out a whole life program for kids under 12 on Cartoon Network watch it they play the commercial alot. Hope this helps.

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#1 written by Bright Future Penguin 1 year ago

Hi, your friendly insurance guy making a return appearance.

There are many types of life insurance. There are four major ones, each with many subtypes. I’ll start with the lowest cost and work upward.

1. Term insurance. This has the lowest out of pocket cost. You buy it for a certain time period (the “Term” – easy enough to remember, right?) If you die during that term, your beneficiaries receive money. If you outlive it, they get nothing. If you lapse the policy, they get nothing and you get no refund. Always, always start with this product. You get the most face value for the lowest cost, and if you die, no one will ask if you had a jazzy type of life insurance, they’ll just ask how much your family got.

Best use – when you have a family and financial protection needs with fixed duraction. Example: “I want to protect my kids till their out of college” (25 year term will cover them till they’d be out of grad school). “I want to make sure my family keeps the house if I die” (30-year term will cover the duration of a standard mortgage.)

2. Universal Life – lowest cost of the permanent products. Can be designed to last a lifetime. Can be designed to accumulate cash value. Can be designed to last for life without really accumulating cash, which is a very low cost way to get universal life insurance (sometimes called “permanent term” for slang).

Best use – skip the cash value part. Use it if you actually have a lifelong need for protection in the “permanet term” configuration. It can usually be issued up to age 80 or 90, so its more common use that I see is to transfer inheritance money from senior citizens to their families quickly and with huge tax benefits. (Life insurance proceeds are not taxed and go around the probate process so they show up in a few weeks rather than months or years after death). Example: “Martha and I saved up $ 5,000,000 and don’t need it cause we have pensions and investments and a business, how can we give that value to our kids without probate or estate tax?”

3. Variable Life – combination of insurance and an investment type vehicle called subaccounts that mimic the way mutual funds work. Usually only useful when someone wants or needs an altnerative investment vehicle when they’ve already used many other avenues wiht the help of a CFP, CPA, qualifed investment rep, etc. It’s enormously risky and I generally don’t recommend it.

Best Use – I’ve seen exactly one case where someone used this product beneficially and it was an incredibly wealthy person who had money to burn and wanted to use it as a way to invest for charitible reasons. If you’re the right candidate for this product, odds are you’ll know already because you’ll have had a long conversation with a CPA about it where he’s tried to find other vehicles and finally decided this was the last option and settled on it for that reason.

4. Whole Life Insurance. The “cadillac product.” Insurance companies love to sell it because it’s enormously expensive. It provides cash accumulation and life insurance components. There are legitimate uses for it, but they are rare – not as rare as Variable Life, but rare. Usually the uses for it are in business context rather than personal. Since you’re looking for personal use, and have small children, skip this product.

Next subject – who to insure?

Insurance for families is like oxygen masks on airliners – Protect the parent first and foremost. This is an unplesant thought, but if your child dies, the financial impact is small. If a parent dies, the financial impact is huge. Life insurance exists to deal with the financial impact of death. Put it in place where the risk of big impact is highest – on the parents.

If you have the means and want to insure a child, you can do it. It’s legal and if the child is healthy, it’s very low cost. It’s just not usually necessary. If your goal is to save for the child’s future there are many other ways that will typically be more advantageous.

Next topic: Companies to use.
Pick one that has a strong financial rating. AM Best, Moody’s, and Fitch are good rating services. Look for companies wiht A rating at the least. Triple A (AAA or A++) is the best. Very few get those ratings, however, and you’ll pay more for using them. The three big mutuals come to mind (New York Life, Northwestern Mutual, and Mass Mutual). John Hancock’s pretty good. AIG’s good.

The lower the rating the less financial stability the company has and the more likely they are to fail to pay claims due to lack of reserves or other financial problems. When your family needs money you do not want to have to argue with an insurance company about why their checking account is low.

If you have questions please feel free to contact me through the Yahoo! Answers mail feature.

I hope my answers have been helpful.

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#2 written by aaron p 1 year ago

There is not a simple answer to your question that will be adequately informative. You should meet with a few different independent insurance brokers to get multiple perspectives. A little competition usually turns out better for you.

Three glaring mistakes mentioned in the above answers:
1. There are more than two types of life insurance. I could name 7 without trying.
2. Just because you buy a permanent policy and pay premiums on schedule does not mean that you will be permanently insured. I have seen many permanent policies in danger of lapsing.
3. There are term policies with a cash value component. They may not be appropriate for you, or most people, but many companies offer these plans.

good luck

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#3 written by Hadley 1 year ago

There are several top-rated life isnurance companies including Northwestern Mutual, Prudential, Metlife, Banner Life and Liberty Life.

There are two basic types of life insurance – Term and Permanent (Whole) Life.

Term life insurance is designed to help people buy life insurance protection they need when they can’t afford to purchase all permanent insurance, or when they only need life insurance protection for a specific period of time. Term insurance provides you with a guaranteed death benefit, but no cash value.

The life insurance premiums will increase at pre-determined intervals such as 1 year, 5 years, 10 years or 20 years. This depends on the type of term life policy you select. A term life policy is often the choice when your life insurance protection needs are higher for a period of time, then drop down to lower levels in later years, such as when your family is growing.

Term insurance can also be an effective way to provide supplemental coverage in addition to permanent insurance during years you need higher levels of protection, such as when your family and other financial responsibilities are beyond your current income.

In these situations, term coverage allows you to purchase important death benefit protection without going beyond your budget. Also, if the coverage is convertible (the coverage can be “converted” to a comparable permanent life insurance policy, without the need to provide evidence of insurability), you can get the coverage you need today — with the ability to purchase permanent insurance coverage in the future.

The Real Cost of Term Life Insurance

However, term insurance has its disadvantages. It isn’t right under all circumstances. Among its drawbacks, be sure to note the following:

You do have to “die to be paid.” As unpleasant as that sounds, it’s true. Term life insurance provides a death benefit only, for a specific period of time. So, if you outlive your policy period, there is no payout to your beneficiaries. When the term coverage expires, your protection ends, too. And, if you stop paying your life insurance premiums, the coverage ends. Period.

Here’s an example for you – Let’s say you own a $ 250,000 term life insurance policy. You’ve kept the coverage in force for twenty years, and the policy expires at midnight on June 30. If you die at 11:59 p.m. on June 30, your beneficiary receives the full $ 250,000 in death benefit proceeds. However, if you die at 12:01 a.m. on July 1, your beneficiary receives nothing under the term insurance policy, since the policy has expired.

Purchasing term insurance is often compared to renting an apartment. When you rent, you get the full and immediate use of the apartment and all that goes with it, but only for as long as you continue paying your rent. As soon as your lease expires, you must leave your apartment. Even if you rented the apartment for 10 years, you have no “equity” or cash value that belongs to you.

There is the Very Real Risk of becoming uninsurable when the term insurance coverage expires. While many term policies are convertible to permanent insurance coverage, others may not be. And, even if the term policy is convertible, there are time limits. If the policy is allowed to expire, you may be required to re-apply for life insurance coverage, and prove insurability by taking a medical exam. If you are found to be uninsurable at that time, you will be without life insurance coverage.

Since premiums increase at each renewal, the long-term cost of term can be very costly. Many people buy term insurance coverage when they are in their 20s or 30s because it appears more affordable when compared to a cash value or permanent life insurance policy with the same death benefit amount. By the time they’re in their 40s or 50s, the coverage seems a little more expensive, as the rate goes up. In their 50s, the cost may be comparable to the cost of permanent coverage. Finally, in their 60s, if not sooner, they may decide to drop the policy — not because they no longer need the protection, but because they usually can’t afford it. However, the person who paid more for a permanent life insurance policy in their 20s may still be paying the same premium. That’s why the term policy’s conversion privilege is so important. This valuable feature is usually available in the first few years of the policy, and allows you to convert to permanent insurance without submitting evidence of insurability. Converting to a permanent policy lets you “lock in” a fixed premium, and your life insurance coverage can never be canceled, provided you pay your life insurance premiums.

The Value of Permanent Life Insurance

Cash value or Permanent life insurance is often the best long term solution for many people. The reasons:

Permanent life insurance provides you with lifetime insurance protection, provided you pay your premiums. Usually, once you’ve been approved for coverage, your policy cannot be canceled by the insurer. Regardless of your health, the insurance will remain in force.

Despite higher initial premiums, permanent life insurance can be less expensive than term life insurance in the long run. Many permanent life insurance policies are eligible for dividends, which are not guaranteed, if and when they are declared by the insurance company. Many companies offer the option to apply current and accumulated dividend values towards payment of all or part of your life insurance premiums. If dividend values are sufficient, out-of-pocket premium payments may be reduced after several years, yet coverage continues for your entire life. So, while life insurance premiums must be paid under both, the permanent and term life insurance plans, long-term out-of-pocket cost of permanent insurance may be lower compared to the total cost for a term life insurance policy.

Permanent insurance can eliminate the potential problem of future insurability. Cash value life insurance policies do not expire after a certain period of time. And, some policies contain guaranteed purchase options, which allow you to buy additional life insurance coverage at specified times, regardless of your health.

Cash Value Life Insurance builds cash value within the policy. This amount, part of which is guaranteed under many policies, can be used in the future for any purpose you wish. If you choose, you can borrow cash value for a down payment on a home, to help pay for your children’s college education, or to provide income for your retirement. (Note: Borrowing cash value from your permanent life insurance policy requires the payment of loan interest and will affect your total policy values.) Also, if you decide to stop paying premiums and surrender or cancel your permanent insurance policy, the guaranteed policy values are yours.

When purchasing life insurance coverage — renewing or converting a term policy — look at more than just the premium. Consider the financial rating of the insurance company. Consider your long term goals and needs for protection. A professional insurance agent can discuss your life insurance goals, analyze your insurance needs and review the pros and cons of the various life insurance policy options available.

You can compare free quotes for term life insurance online through Efinancial, they have offered life insurance quotes online since 2001. You just fill out one form and get up to 12 Instant Quotes for term life insurance from top-rated insurers with no obligation. To get your free quotes visit https://www.efinancial.com/smartquoteefc.aspx?source=389-707

I hope that helps! Best of luck to you.

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#4 written by mbrcatz17 1 year ago

There are more than two.

You need to define the goals that you want the insurance policy to accomplish, then sit down with a LOCAL AGENT to review your options.

I don’t insure children’s lives. It’s a waste of money.

Usually, term insurance is the best fit for most people’s needs – but not ALL people’s needs.

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#5 written by Common Sense 1 year ago

I don’t have time to fully answer this… but;

Whole Live, Variable Annuities and packages using their basic principles are sold incorrectly and usually to the people that need them least.

Banks and Insurance Companies are the worst place to go for investments/growth of your capital.

Buy Term Life (Life Certain, in my opinion is best).

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#6 written by shopgirlz2 1 year ago

It is never too soon to get life insurance for you or your loved ones. Get some now!!! Life Insurance Companies are all different, but one of the main things is to make sure they have a good financial stability rating (you should ask them what theirs is) You will want to get an A or better. That means they are financially stable, among other things.

Term insurance means exactly what it says, it is for a term, or a length of time. You can get term insurance for 5 years, 10 years, 15 years, or 20 years, etc. Term insurance is very inexpensive (younger ages get cheaper insurance). It does not build cash value, and after the term runs out (the 10 or 20 years that you chose) then the premium significantly increases. If you are just starting out with a child, whether you are single or married, and you don’t have a whole lot of extra money to pay the premium, term life would definitely be a benefit for you. It gets you good insurance (you pick how much $ 50,000 $ 100,000 $ 150,000) for a term (10 or 20 years) for a cheap monthly premium. Again, the term that you choose will eventually run out, so you will want to convert your policy within that time before it runs out, but if something were to happen to you during the 10 or 20 years, you would have something to give to your family for burial expenses, and for financial support.

Whole life never runs out, it is not for a term, it is in fact just what it says for your whole life. It is more expensive, but you are locked into the premium rate when you take it out. (So again, buying it while you are young, you will get a better rate). Whole life does build cash value.

Regardless of which one you choose, the main key is to make sure you have some now. Get a policy soon if you don’t have one. Life insurance is medically underwritten (most companies anyway) so they will want a medical exam where they come to your house and draw blood and a urine sample to make sure that you don’t have HIV or diabetes, and that everything looks good on the lab results. (Obviously your 1 yr old probably won’t need one, but you will) Once your policy is issued, you can then think about replacing it with a different policy at a later time.

You may think, well I will put it off until next week to apply for it, but then something happens to you, for example you end up with cancer. Then, chances are, you won’t be eligible for life insurance and you won’t have a policy when you need it.

So, buy it now!!! Talk to a couple of different life insurance agents if you want, and get some more information, but definitely don’t wait. Any life insurance is better than no life insurance.

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