All life insurance policies have one thing in common – they're designed to pay money to the "named beneficiaries" when you die. The beneficiaries can be one or more individuals or even an organization. In most cases, policies are purchased by the person whose life is insured, but life insurance policies can be taken out by spouses or anyone who is able to prove they have an insurable interest in the person.
There are many different types of life insurance policies. However, they generally fall into two classes of life insurance products: term and cash value. You can also take out separate "riders" that allow you to modify or add to your policy's benefits. Since each individual's situation is different, please review our descriptions below and our answers to frequently asked questions to help you better understand what you should consider before you speak to a financial advisor.
Term Life Insurance
Term life insurance is a policy that is purchased for a period of time (a term). The policy pays money to the named beneficiaries if the insured dies during the term. Term life insurance is intended to provide lower-cost coverage for a specific period.
Term life policies may include a provision that allows coverage to continue (renew) at the end of the term, even if your health status has changed. However, those premiums may be higher than the original policy. Ask what the premiums will be before you renew. Also, ask if you lose the right to renew at a certain age. If the policy is non-renewable you will need to apply for coverage at the end of the term.
Cash Value Life Insurance
A cash-value life insurance policy is different because you can keep it for as long as you need it. These policies also have savings or investment features, which make it possible for policy owners to get money from the policy while they’re still alive. Whole life, universal life, and variable life are types of cash value policies.
Life Insurance Riders
Life insurance riders give you a choice to add coverage that isn't in your life insurance policy. But adding a rider also increases your premium.
With a waiver of premium rider, you can stop paying your life insurance premium if you develop a covered illness or disability named in the rider. Also, check if you must wait before the insurer waives the premiums after you're diagnosed.
With an accidental death benefit rider, your policy will pay more than the death benefit if you die in an accident. Some riders pay two to three times the death benefit for certain accidents. Insurers sometimes describe these riders as double or triple indemnity. Be sure to check how the rider defines an accident.
A guaranteed insurability rider lets you increase your death benefit at certain times in the future without a medical exam. How much it costs to increase the benefit will depend on your age and the amount of the increase, not your health or lifestyle.
A long-term care rider lets you use part of your death benefit to pay for long-term care expenses. There may be a limit on how much of the death benefit you can use. Also, you may be able to use the benefit only for certain types of long-term care expenses, such as nursing home or home health care. The rider will state how the insurer will pay benefits. You may have to pay for expenses first and be reimbursed. Or the insurer could pay you a set amount each month. The rider also will tell you what's required to access your death benefit. Usually, you must be unable to do certain activities of daily living. You may also have to wait a set amount of time before you can use the death benefit for long-term care expenses.
An accelerated death benefit is also known as a "living benefit." It lets you take money from your death benefit if you're diagnosed with a terminal illness and expect to die soon. You don't have to use the money to pay for care related to your illness. Be sure to check the rider to learn what terminal illnesses qualify and what else the insurer requires. Ask how much of the death benefit you can receive and how much will be kept to pay beneficiaries after you die.
Life insurance and annuities can be an important part of your family's long-term financial planning. However, shopping for the right coverage can be intimidating. That is why it is important to find a trusted advisor for guidance on which type of policies best fit your risk tolerance and investment objectives. Learn more about your life insurance options from a licensed financial advisor using our one-of-a-kind Find An Advisor tool.