Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent Daniel Walker

UPDATED: Aug 27, 2021

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No, all life insurance is not the same. There are many two main categories of life insurance, and there are many differences within those categories as well as many variations depending on the company offering the life insurance.

Further, there are different ways to manage your life insurance as well as different limits that can be applied on a life insurance policy. Whether you’re comparing life insurance companies or plans, it’s critical to know what you’re getting. Often, people choose the most affordable life insurance plan not realizing why the policy is so cheap. A high-priced plan isn’t always the right fit, but you can make the right decision with the right information. Simply enter your zip code above to start getting life insurance rate quotes now!

What Should You Know about Term Life Insurance?

Let us first begin by describing the more basic of the two options: term life insurance.

This type of policy is similar to what it sounds like. It is offered for a certain term or period of years (typically in a range of 10 to 30 year policy). Because it does not guarantee a benefit payout, this is the more simplistic and thus usually cheaper of the two types of policies. In other words, you can pay into this plan. But if you live past the pre-agreed time limit, your beneficiaries would not get a payout. For this and other reasons, term life insurance policies are generally much cheaper.

The time limits are strict. If the insured dies a day after the policy expires, the beneficiaries will not receive any payout.

However, if the policy lapses after the insured passes away, the beneficiaries will most likely still receive a payout. The payout during this eligible period could be bigger than you’d otherwise get for the same premium. While the term life insurance offers a death benefit payout (which you can tailor to fit your family’s needs), it does not offer a cash value account within the policy. Online life insurance quotes for term coverage can be very competitive.

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What Is Whole Life Insurance and Permanent Life Insurance?

The next type of life insurance policy is a permanent life insurance, or most often referred to as whole life insurance. This type of policy is also similar to how it sounds- it is purchased with the intention of lasting the insured’s “whole life” until they pass away and then the beneficiaries will receive their payout.

Aside from the guaranteed payout that your beneficiaries receive (assuming all payments are continually made), another benefit to the set-up of the whole life insurance policy is that there is a cash value account that gains interest as you make payments to your policy.

Once the cash value account of a whole life policy has enough in it, you have the option to use it for premium payments on your policy. Although this can ultimately reduce your death benefits, it is a good way to make consistent payments to your policy. The premiums on these life insurance policies are generally higher, but there is a guaranteed payout within the terms of the policy.

Another common type of whole life policy is referred to as a cash value policy. There are also additional tax benefits to this cash account.

First, your interest gains cannot be taxed as income (unless the account is closed and you did not pay back the “loan”). Second, if the beneficiary named to receive the payout is a specific person, the payouts can be excluded from estate taxes. Third, your beneficiaries are not required to pay income taxes on the death payout either.

Lastly, you are not required to pay taxes on the interest gains that you may receive within the cash value account, even if you use that as a loan to yourself to pay your life insurance premium. The only instance in which you may have to pay the taxes is if you ultimately end up canceling your policy. You can read more about the differences between term life and whole life here.

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What Other Life Insurance Products Are Available?

There are also other types of policies offered by life insurance companies considered under the umbrella of whole life insurance, such as a universal life insurance plan. The diverse options give more people access to life insurance, but you should always know what you’re getting. This type of policy offers more flexibility with the payments than a whole life policy does.

You may choose to pay more than required, less than required, or no payment at all. This is different than a consistent whole life policy which carries one premium per policy term. As the insurance industry evolves, you may even adjust your policy as part of the bigger net of financial services.

As with most types of insurance, life insurance is complex, has many different types of choices, limits, and payouts. It is best to consider a few items before comparing policies and companies. First, decide whether term or permanent life insurance fits your needs better. Once you have made this decision it will be much simpler to search companies and policies.

Then think about what employer benefits you already have, what other retirement funds you have set aside, and what gap that leaves for your family and loved ones.

Use that information to consult with a licensed insurance agent or, even simpler, to search on a comparison website like this one here. It will then depend on what type of payment will be manageable, what options a cash value account give you, or even if a term policy will fit your family’s needs for the best shorter term option.

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