Life insurance is a legal agreement between an insurance company and the insured person. The insured individual agrees to pay single or multiple premiums, for which the provider pays a lump sum on their demise to one or more beneficiaries. Insurance is an accepted tool for financial planning, tax advantages, legacy planning, and, most importantly, financial security for dependents. Keep reading to learn about the types of life insurance and the best options to consider.

Things to know about life insurance

Individuals planning to buy a life insurance policy for the first time should consult insurance agents to clear concerns about the coverage and the amount to set aside for monthly premiums. An insurance benefit or the payout the insured receives should cover their family’s needs in the event of their unfortunate passing. Before choosing the right life insurance policy, understand the policies, your health history, and future family needs. Here are some of the basics you should know about life insurance-

• The policyholder is the owner of a life insurance policy.
• An insured person is an individual whose demise is covered by a life insurance policy. The insured person can be different from the owner of the policy. For example, a daughter may be the owner while the mother may be the life assured.
• Beneficiaries are one or more persons who will receive the death benefit if an insured person passes away.
• Premium is the monthly, quarterly, or annual amount you pay the insurance company for the benefit they provide when a life insurance policy matures.
• Face value refers to the death benefit the company will pay in the event of the passing away of the insured individual.
• Cash value is the portion of your permanent life insurance policy you can borrow or invest.

Types of life insurance

Most life insurance plans fall under two main categories – permanent and term. A life insurance company can offer customers both life and permanent life insurance plans.

Permanent life insurance

A permanent life insurance policy remains active till the policyholder is alive and pays the premium without fail. The different types of Permanent life insurance are-

• Whole life insurance offers lifetime coverage and has fixed premiums and guaranteed benefits. One can also take loans against the cash value of the policy.
• Universal Life (UL) insurance has flexible premiums, and you can earn interest on the cash value component based on market performance. The policyholder can adjust the death benefits while the policy is active.
• Indexed Universal (IUL) is a type of UL where the policyholder can earn a fixed or equity-indexed return on the cash value component.
• Variable Universal Life Insurance (VUL) has a savings component where you can invest the cash value in products like mutual funds. The premium of VUL is flexible.

Term life insurance

Term life insurance has a prefixed time of 10 to 30 years, while the death benefits may be fixed or changed based on the age of the policy. Policyholders have to go through a healthcare examination. Term life insurance is generally cheaper and more affordable than permanent life insurance premiums. Beneficiaries receive money only if the insured’s demise happens within the policy period. If the insured outlives the term, the beneficiaries will not receive money. The different types of Term Life insurance are listed below.

• Level term insurance has a level death benefit for the entire policy duration. The beneficiaries will get the same amount if they pass away three years after buying a policy or in the last year of the policy.
• Decreasing term life insurance has decreased death benefits as the policy matures. It may suit users who feel their dependents may not need too much financial support over time.
• Convertible term life insurance allows a policyholder to convert their term insurance into a permanent or a universal policy later.
• Renewable term life insurance allows the policyholder to renew the insurance for an additional period without any requalification.

Cost of life insurance

Your age, gender, current health status, lifestyle, family medical history, profession, and driving record are some of the key factors that insurance companies consider while working out the premium of your life insurance plan. You can use online insurance premium calculators and get an idea about approximate monthly premiums. The average monthly premium for whole life insurance is $52, $53 for term life insurance, $56 for universal life insurance, and $40 for variable life insurance.

Best options for life insurance

You can buy a life insurance policy directly through a company or authorized agents. Review a company’s history, financial standing, and record on claim processing and settling before choosing them. Explore further if there are any pending lawsuits for insurance fraud. Compare quotes of multiple companies using parameters like coverage limit, term, and the monthly premium you can afford. Based on the above values, some of the best life insurance providers are listed below.

1. Nationwide
2. MassMutual
3. Protective
4. Mutual of Omaha
5. Guardian