Life Insurance 101: Understanding Whole, Term & Permanent Policies

Life is full of uncertainties, but your financial well-being shouldn’t be one of them. A life insurance policy can provide some sense of security, as it provides a financial benefit upon the insured person’s death. 

The primary purpose of life insurance is to provide financial protection and support to the dependents and loved ones of the insured person in the event of their death. Also known as a death benefit, this payout can replace the loss of income, pay for outstanding debts, cover funeral expenses, and ensure the financial well-being of the beneficiaries.

Popular Life Insurance Providers in 2023

State Farm has served customers for over 90 years and offers various other types of insurance besides life insurance.

• Policies: Term Life, Whole Life, and Universal Life

New York Life is one of the oldest and largest life insurance companies in the US, with a reputation for financial stability.

• Policies: Term Life, Whole Life, Universal Life, and Variable Universal Life

Prudential offers various financial services beyond life insurance, including retirement and investment planning.

• Policies: Term Life, Universal Life, Indexed Universal Life, and Variable Universal Life

MetLife serves customers in nearly 50 countries and is one of the world’s most extensive insurance and financial services companies.

• Policies: Term Life, Whole Life, Universal Life, and Variable Universal Life

Northwestern Mutual is highly rated for its customer satisfaction and financial strength.

• Policies: Term Life, Whole Life, and Universal Life

John Hancock is known for offering policies with wellness benefits and has a program that provides discounts for living a healthy lifestyle.

• Policies: Term Life, Whole Life, and Universal Life

Mutual of Omaha has a strong reputation and has operated for over 100 years. 

• Policies: Term Life, Whole Life, Universal Life, and Accidental Death

Exploring the Diverse Types of Life Insurance Coverage

Life insurance is a contract between an individual (the policyholder) and an insurance company. In exchange for regular premium payments, the insurance company promises to pay out a financial benefit to the beneficiaries as stipulated in the policy.

There are various types of life insurance policies available, including:

• Term Life Insurance: Provides coverage for a specific period, typically 10, 20, or 30 years. If the insured person passes away during the policy term, the death benefit is paid to the beneficiaries. Term life insurance is generally more affordable but does not accumulate cash value.
  
• Whole Life Insurance: Offers lifelong coverage and includes a savings component called cash value. Premiums for whole life insurance are higher, but a portion of the premium goes towards building cash value, which can be accessed or borrowed against during the insured person’s lifetime.
  
• Universal Life Insurance: Provides flexibility in premium payments and death benefits. It combines a death benefit with a cash value component that earns interest over time. Policyholders can adjust the premium and death benefit amounts within certain limits.
  
• Variable Life Insurance: Offers both a death benefit and an investment component. Policyholders can allocate the cash value portion to various investment options, such as stocks or bonds. The cash value and death benefit can fluctuate based on the performance of the underlying investments.

The type of insurance you choose depends on individual circumstances, financial goals, and needs. It’s important to assess the options carefully, consider factors like coverage amount, affordability, and the specific needs of beneficiaries. 

Consulting with a financial advisor or insurance professional can help in making an informed decision regarding the most suitable life insurance policy.

Weighing the Pros & Cons of Different Types of Life Insurance

Costs Considerations 

Term Life Insurance provides coverage for a specific term, typically 10, 20, or 30 years. 

• Average Costs: The average cost of term life insurance can vary based on the term length and coverage amount. Generally, term life insurance offers the most affordable premiums compared to other types of coverage.
• Price Range: The average cost for a healthy individual can range from $20 to $30 per month for a 20-year term policy with a coverage amount of $250,000 to $500,000. However, these costs can increase significantly with age and longer-term lengths.

Whole Life Insurance offers lifelong coverage with a cash value component. 

• Average Costs: Whole life insurance generally has higher premiums than term life insurance.
• Price Range: The average cost for whole life insurance can vary depending on age, health, coverage amount, and policy features. On average, monthly premiums can range from $100 to $300 or more.

Universal Life Insurance includes a cash value component and allows policy adjustments within certain limits. 

• Average Costs: Universal life insurance offers flexibility in premium payments and death benefits, which can impact the average costs.
• Price Range: The average cost for universal life insurance can vary significantly based on age, health, coverage amount, premium payment schedule, and policy performance. Depending on individual circumstances, monthly premiums can range from $100 to $500 or more.

Variable Life Insurance premiums can fluctuate based on the performance of the underlying investments.

• Average Costs: Variable life insurance combines a death benefit with an investment component, affecting average costs.
• Price Range: The average cost for variable life insurance can be higher than other coverage types. Depending on various factors, monthly premiums can range from $200 to $800 or more.