You may already know that life insurance can help financially protect you and your family. But do you know about the different types of life insurance? And, do you know which types can help meet your needs? Here’s a quick look at four popular types of insurance and what their differences are:
1. Term life insurance
Term life insurance provides affordable coverage for a certain period of time. It could be 5, 10, 15 or 20 years. You get to choose the term you want. If you died during this set time period, your beneficiaries – the people or person you want to leave your money or assets behind to – will get a tax-free death benefit.*
(*The death benefit refers to the amount of money paid to the beneficiary when an insured person dies. The exact amount they receive depends on how much life insurance coverage you buy.)
Your beneficiaries can then use the money from that benefit for any reason. For example, they can use it to pay:
- the mortgage or rent,
- child-care costs,
- tuition costs,
- funeral costs,
- living expenses, etc.
2. Permanent life insurance
Permanent life insurance provides coverage for your entire life. Under a permanent plan, your premiums* remain the same, regardless of any changes to your health as you age. And, your beneficiaries will get a tax-free death benefit after you die. They can then use that benefit as they see fit.
(*Premiums refer to the monthly or annual fees you pay in exchange for having insurance.)
Most permanent insurance policies also include a feature called cash value. The cash value is the portion of your insurance policy that earns interest. It grows over time and you can borrow directly against it or use it as collateral for a loan. You can also withdraw your cash value, but this will usually reduce your death benefit.
- Is permanent life insurance right for you?
- Term life vs permanent life insurance: What you need to know
3. Participating life insurance
Participating life insurance is a type of permanent insurance, in which you’re typically eligible to earn dividends. You can use those dividends to reduce your premiums or get more coverage. Or, you can choose to withdraw them as cash.
A participating policy offers financial protection for your beneficiaries, who’ll get a death benefit after you die. But while you’re alive and well, it also gives you the chance to earn more through potential dividends.
4. Universal life insurance
Universal life insurance offers lifelong protection with a range of investment options. Your beneficiaries will still get a death benefit after you die. And, any payments you make above the cost of insurance can potentially grow in a tax-preferred savings account. You can then use this savings account along with your other efforts to help build and grow your savings, such as:
What type of life insurance is right for you?
So now that you get the gist of four types of life insurance, how do you figure out which one is right for you? Watch the video above where Vineet Kochhar, Senior Vice President of Insurance Solutions at Sun Life, explains how these policies can help meet the needs of people in specific situations.
To find out what life insurance policy suits your financial situation, it helps to talk to an advisor. Why? Because an advisor can help you understand the different kinds of coverage available and all the features and benefits they offer.
An advisor can also help you build life insurance into your overall financial plan. For example, maybe your needs are simple and you need just one type of insurance to cover your spouse or kids. Or maybe your situation is complex, with a blended family or a business to protect. In such cases, you may need more than one type of life insurance.