For most people, protecting their futures and the futures of their families means purchasing life insurance. The problem, however, is that most individuals know very little about the complicated world of life insurance. They don’t fully understand the different types of life insurance that are available, and how a particular type of life insurance may be needed for their particular situation.

In addition, most people usually stop at simply buying life insurance. They may have heard of products such as long-term care insurance or disability insurance, but never bothered to investigate these any further. Or, if they have investigated these other ways to protect themselves and their families, they figure that buying this type of insurance is expensive and out of reach. The reality is that life insurance and other types of insurance that provide financial protection are often not as expensive as people believe.

Often, the reason that insurance seems so expensive is that people take the word of an insurance agent who is trying to sell the most expensive product without doing their own research into what insurance is best for them. The information contained in this article should assist you with understanding more about life insurance. However, it will also go beyond that to help you make better choices about the additional ways that you can financially protect your family.

Whole Life

While there can be many different types of life insurance with many different names that vary from company to company, three major types of life insurance exist: whole life, term, and universal life. Whole life insurance provides coverage over the entire life of the owner. With whole life insurance, the owner of the policy is buying the policy itself, and cash value. The additional cash value of a whole life policy is obtained because a portion of each month’s premium is invested by the insurance company and earns a guaranteed amount of interest for the policy owner; usually around 4%.It should be understood that the cash value of a whole life policy is not accrued quickly. In fact, the policy will usually not have any cash value until after the first two or three years. In addition, for most policy owners, they will not have any large amount of cash value until after several years. The cash value of the policy can be taken from the policy as a loan if needed while the owner is still alive.

However, the money must be paid back into the policy. Otherwise, the death benefit of the policy will be lowered by the outstanding loan. The advantage of a whole life policy is that the premium is set at the age in which you purchase the insurance. The younger you are when you buy the insurance, the lower your premiums will be. The premiums of a whole life policy usually never increase throughout the life of the policy. The disadvantage of a whole life policy is that the cost of the insurance at any age is going to be higher than with other types of life insurance because you are buying more than just life insurance. You are also buying the cash value side of the policy. A person who is purchasing this type of insurance must decide if buying the cash value is really important to them.

Many financial experts actually try to dissuade individuals from buying whole life policies because they can buy term life insurance at a much cheaper rate. These experts suggest that people buy term life, and then invest the extra money they have from not buying whole life in stocks, bonds, or other investments themselves—instead of paying an insurance company to do it. Whole life polices also come with other options, such as riders to insure spouses and children and paid-up additions which allow interest and dividends from the cash value to help pay the policy early so that you don’t pay on it for life. These options should be discussed in detail with your insurance agent. Whole life insurance can be purchased from many major companies, such as MetLife, New York Life, and Prudential.

Term Insurance

Term insurance is purchased with a different plan in mind from that of whole life. With term insurance, you purchase life insurance for a specific number of years, after which the policy ends. For example, a person might purchase term insurance for 10 years. During the 10 years, the person’s life is insured for the face amount of the policy. After the 10 years, the policy ends and the person is no longer covered. With most companies, term insurance can be purchased for 10 years, 15 years, 20 years, and even 30 years.

The premium for the insurance is typically higher at any age the longer the duration of the insurance. Term insurance is often purchased to cover a specific event. For instance, new parents might purchase a 20 year term policy to provide money for their child in the event they should die before he or she becomes an adult. Or, a husband might purchase term insurance to help his wife pay off the mortgage in the event that he dies before the mortgage is completely paid. For many people, term insurance is a better choice than whole life.

Term insurance is usually much cheaper and more affordable. Where you might be able to afford $50,000 of whole life, that same amount of money might buy $100,000 or even $250,000 of term. The reason for this difference is that you are only insuring your life for a set number of years, and you are not building any cash value with term insurance. There are several sites on the internet where you can get an instant quote for term life insurance from several companies at once. SelectQuote and Intelliquote are two sites where term quotes can be obtained for such companies as Mutual of Omaha, Prudential, Genworth Financial, and AIG, as well as others.

Universal Life

Universal life insurance provides much the same protection as whole life insurance. However, unlike whole life insurance, universal life policies can build cash value above the minimum guaranteed rate. This money grows and accumulates on a tax-deferred basis. By earning additional cash value, the money can be used to pay premiums in times when you may not have the funds to pay the entire amount. In addition, just as with a whole life policy, you can borrow against the cash value. Universal life polices are much more complicated than whole life insurance because you can adjust the amount of insurance or the premiums in order to create more cash value or increase the death benefit. It is important to consult a licensed and qualified professional to determine the best options for your future goals.

Long-Term Care Insurance

Long-term care (LTC) insurance provides benefits if a person needs specialized care from in-home nurses, stays at a nursing home, or from assisted living facilities. Most LTC plans pay a daily benefit to help with the costs associated with needing these types of specialized care. It is a sad fact that most American do not have the means to pay for their care as they become elderly. This usually means that they are at the mercy of Medicare to meet those needs. As anyone who has dealt with an elderly relative knows, relying on Medicare means following their rules as to what types of treatments are covered and when.

With LTC, more options are given to the person needing care as to when and where they can receive that care—including in-home treatment from nurses. When purchasing LTC, there are parts of the policy that must be considered. All LTC polices have an elimination period. This is the amount of time that must pass before you begin receiving benefits. For most LTC polices, the elimination period can be as short as 30 days, or as long as 1 year. In addition, all LTC polices have a benefit period and a benefit amount. The benefit period is the length of time for which you will receive benefits from your policy. Many polices have a benefit period that is around 5 years. The benefit amount is the amount of money you will receive for each day that you need specialized care. For most polices, the benefit amount ranges from $75 per day to $150 per day.

Finally, most LTC polices have an inflation protection rider. This rider increases the daily benefit every year based on the cost of living. This protects the insured from the rising cost of medical expenses during the course of their policy. Companies that sell long-term care insurance include MetLife, John Hancock, and Prudential.

Disability Insurance

Disability insurance is designed to replace some of the income of an individual in the event that they become disabled. While disability insurance is designed to financially protect individuals when they can not work due to disability, it is not designed to be a complete income replacement. Disability insurance typically replaces around 50% of a person’s income depending on the type of policy purchased. The benefits that can be received from these policies are based on the past income of the person being insured. The insurance company usually looks at the past two years of tax returns to determine the policy owner’s annual income. In addition, insurability is based on the type of occupation performed by the policy owner.

If the person buying the insurance performs more than one job, the insurance company is going to look at the most hazardous of these occupations to determine the risk of the individual. Disability insurance is typically purchased with some of the same options as long-term care insurance. The policy will have an elimination period, or a period of time that the policy owner must be disabled before benefits will begin. In addition, the policy will have the amount of time during which benefits will be paid—known as the benefit period. For many policies, the benefit period can be as short as two years, or can be until the policy owner reaches age 65.

Most companies that issue disability insurance do so for white collar workers. People who work in executive-type positions are the individuals they seek to cover. For people who work in blue-collar positions, especially police officers, it can be difficult to get disability insurance. Companies that sell disability insurance include Principal Financial Group, Prudential, and Standard insurance companies. For blue collar workers and workers who have higher-risk jobs, it would be good to check Assurity, which is known for writing policies for these occupations.

The Bottom Line

The bottom line on purchasing insurance, regardless of the type, is to find a licensed professional who is knowledgeable about all of these types of life insurance. It is important the person you choose can see what you need based on your situation, rather than simply peddling the same insurance to everyone in order to make a commission. It is also important to understand that you have a responsibility in the buying process. You must be open and honest with the insurance professional you choose. In order to provide the best help to you, he or she must have the complete picture so that the best product or products can be chosen. With a little knowledge in the beginning, and by asking many questions of a licensed professional, you can insure that you have the best protection for your unique situation.

External Links:

• SelectQuote - Term Life Insurance Quotes
• Intelliquote - Term Life Insurance Quotes
• MetLife - Life Insurance
• New York Life - Life Insurance
• Assurity - Disability Insurance for blue collar and higher risk individuals