Life Insurance: Types, Options & Meanings

Life insurance is an insurance product aimed at creating and safeguarding an estate that responds to the needs and demands of the insured. As a rule, the benefits are payable postmortem to the inheritors indicated in the policy. The insured can indicate close or distant relatives, dependents, or a business. Some categories have a savings element allowing policyholders to save up, take out loans against savings, and make investments.

Preparing for future changes and all possible occurrences can directly affect your financial stability. Naturally, securing your financial assets and ensuring that the people you hold dear are taken care of is the primary goal of every person. And one of the best ways of getting your affairs in order is taking out life insurance. However, understanding the distinction between life insurance types is essential to ensure that you and your family are covered appropriately.

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How Does Life Insurance Work?

Any type of life insurance is designed to ensure the financial health of the holder’s family members. In a nutshell, the main goal of the insurance contract is to meet the needs of the beneficiaries after the head of the household passes away.

To clearly define how much insurance you need, you must employ every instrument available to you, like a quote comparison tool and life insurance calculator. While there is a lot to consider in the process, you should focus on the age restrictions, insurance duration, flexibility, available guarantees, and rates.

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Today, shopping for life insurance no longer requires talking to insurance agents or visiting their offices. All the crucial information is available online, contributing significantly to the further digitalization of the process. And regardless of your physical location, you can research, get life coverage quotes, and buy online.

When it comes to the aspects of coverage, life insurance has a lot to offer. While its purpose is to lighten the financial burden the policyholder’s family might face, the types of deferred expenses and financial responsibilities differ.

Life insurance policies can cover several situations, like bills and expenses, debts, loans, college tuition, child care, or costs associated with funeral arrangements. Besides, the policy can also come in handy if the holder wants to leave a legacy. Therefore, it is crucial to choose not only an affordable but also a good insurance policy. To make it happen, you need to evaluate your needs and assess the cost-effectiveness of the available options.

Term Life Insurance

The first thing you need to know about term life insurance is that it has a limited duration. Therefore, you should be aware of the specific restrictions to paying out the death benefit.

In simple terms, beneficiaries have a right to receive compensation for death only if a policyholder passes away during the insurance period. If a policyholder dies after the validity period expires, the death benefit is not payable. Unfortunately, the same applies to the premiums. The premiums are typically non-refundable unless a holder buys a rider to the insurance that guarantees the return of the premiums. However, you should remember that getting this type of rider can lead to significantly higher expenses.

On the bright side, some of the policies can be renewable or convertible depending on the conditions stated by the insurance companies. As a rule, the cost of term life policies is based on age and the availability of health coverage.

Universal Life Insurance

As one of the basic types of permanent life insurance, a universal policy guarantees life-long coverage for the policyholders. However, it can be automatically terminated if the policyholder does not meet the payment deadline regularly or fails to meet the indicated requirements.

Like other types of permanent coverages, it includes a cash value that offers multiple benefits like earning interest or accessing funds that build up within the policy in an emergency. Besides, under this policy, beneficiaries receive guaranteed compensation for death upon the demise of a policyholder.

What is even more important is that some insurers allow their clients to adjust the death benefits. But in case that is something you are interested in, you might be required to undergo a medical examination. This policy is an excellent choice if you are looking for insurance coverage with flexible premiums and savings components.

If your interest lies not only in buying a flexible insurance policy but also in pursuing investment opportunities, you should consider variable life coverage. The distinctive feature of this coverage is the ability of a policyholder to invest in sub-accounts. However, it is crucial to remember that all the investments within this policy depend highly on market fluctuations.

Whole Life Insurance

Another example of a permanent life insurance policy guarantees life-long coverage unless a policyholder fails to meet his payment obligations. This policy remains one of the most popular choices among clients because of the range of benefits.

One of the most appealing advantages is the fact that the premiums are permanently fixed. And no market condition can ever impact that. There is also a cash value granting an opportunity to take a loan against the policy. Besides, the policyholders have an opportunity to get life insurance for children should they need one.

To make it happen, an adult can add a rider to their policy, covering all of the children up until they reach a certain age. Typically, children are not required to undergo a medical examination to be eligible, making the process fast and mostly effortless. Besides, if a medical condition runs in your family, a child will be protected should they ever develop any symptoms.

Other Insurance Options

As an example of an alternative easy-to-get policy, the final expense can come in handy if you want to cover funeral expenses. However, there are no restrictions on the use of the paid-out benefit. With this policy, almost any applicant is eligible regardless of his current or pre-existing medical condition. That is why it is also called no medical exam insurance.

It is a perfect choice for applicants who developed an uninsurable health condition, denying them any other insurance options. Since final expense is considered a smaller version of the whole life policy, you should expect fixed premiums with a possible cancellation of the coverage if you fail to meet payment obligations. This policy, however, implies an obligatory waiting period, which takes approximately two years. During the waiting period, policyholders have restricted access to the death benefit. As for the average cost, you will pay around $50 a month, but it depends on the insurers’ age limits and any other conditions.

When it comes to service members, there are several options available to those still on military duty. And most of them are familiar with the insurance offers designed for active members. As for the veterans or those planning to retire soon, the choice is smaller, and they need to look for suitable policies.

Life insurance for veterans also comes with numerous requirements and terms. Some of the policies require retired service members to enroll in associated policies or become members of specific associations. On the bright side, the most popular policies for veterans also accept applications from those who suffered an injury or acquired a disability during the service. Since disabilities or other medical conditions associated with the military service might be a reason for insurers to deny coverage or standard rates, specifically designed policies can serve as an additional layer of protection and security.

Victoria Berezhetska

Victoria Berezhetska is a Content Lead at and an expert contributor to CoverExplore. She has a Bachelor of Science degree in Business Administration, with extensive working experience as a PR specialist and content writer. At CoverExplore, she helps customers find the right educational material through easily digestible blog posts and buying guides backing their insurance coverage choice. Victoria covers diverse topics around digital and insurance marketing, including auto, home, health, and life insurance.

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