Understanding Different Types of Life Insurance

September marks Life Insurance Awareness Month, a pivotal time to explore the world of life insurance. This article covers the basics of life insurance and the different types that employers can offer to their employees. We’ll clarify the features and benefits of each type.

Whether your goal is safeguarding your family, your business, or both, this article will give you the knowledge that you need to secure your future.

Types of Life Insurance

Life insurance is divided into two categories: term and permanent.

Term Life Insurance

Term life insurance has a specified coverage period (term), typically one year, but can be renewed for additional terms or even be converted into a permanent policy.  Premiums are generally affordable initially but can increase substantially when renewed.

Whole Life Insurance

Whole life insurance is a type of permanent insurance that offers coverage for as long as premiums are paid.  A whole life policy also has a cash-value savings component. This type of policy has higher premiums than term life insurance. Premiums remain constant throughout the life of the policy.  A portion of each premium is deposited into the policy’s cash value and is invested by the insurance company.  Whole life pays a fixed amount upon death.

Universal Life Insurance

Universal life insurance is another type of permanent insurance policy that combines term insurance with a cash value component that earns interest at a rate set by the insurance company.  The policy’s cash value can grow on a tax-deferred basis and can be withdrawn or borrowed from the policy. A universal life policy is more flexible than a whole life policy, because you can change your premium payments from year-to-year, as long as the policy has sufficient cash value to pay the cost of insurance.  In addition, you may be able to change the amount paid as death benefit, within limits.

Variable Life Insurance

Variable life insurance is a type of universal life insurance.  It offers the same flexibility with respect to premiums and death benefits and has an investment component.  The difference is that the policy owner has more control over the investment of the policy’s cash value.  A variable insurance policy offers professionally managed investment options, which allows for the potential to accumulate greater cash value.  However, there is greater risk for loss in a variable insurance policy if the investments suffer a loss.

Employer-Sponsored Coverage

Employers can make any type of insurance policy available to their employees.  In addition, employers offer a variety of cost-sharing options.  Some employers will pay the entire premium, while others require employees to pay the full premium (or a portion of it).

Premium Amounts

Rates for life insurance policies will vary. Women typically pay less than men, due to their longer life expectancy, and rates increase with age. Also, smokers pay more than nonsmokers.

For a better understanding of the different types of life insurance and what you can expect to pay, contact RMC Group today at 239-298-8210 or [email protected].

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as professional advice. © 2016, 2018 Zywave, Inc. All rights reserved.