The purpose of life insurance is to ensure that your family is financially secure at the time of your death.
However, no single insurance policy will suit the needs of all policyholders. For this reason, there are many different coverage options for Virginia residents.
Below, we’ll cover the six most common.
1. Term Insurance
An insurance policy with a designated term of activity is considered term insurance.
In other words, there is a defined period of time that you are covered under the policy.
If you die within your “policy term” of coverage, your beneficiaries will receive your benefits.
Term insurance policies generally operate with low premiums for full coverage, which makes them a popular choice for a tight budget.
However, there are several subtypes of term insurance:
An increasing term policy is one that increases by intervals the amount that is paid out to your beneficiaries.
(Note: This coverage is preferable to ensuring you are adequately covered. It aids in accounting for increases in the costs of living over the time of your policy until your time of death. This helps your beneficiaries to cover your liabilities and other post-mortem expenses.)
A level term policy is one that provides the same payout to beneficiaries as when you enrolled, no matter when you die within your policy term.
With this policy, you will receive the same coverage throughout the entirety of your policy.
A decreasing term policy, contrasting the increasing term policy, is one that decreases monthly or annually in the amount that is paid out to your beneficiaries.
Renewable Term Policies
The term insurance options also have the ability to be renewed upon request.
If you’re insured under increasing, level, or decreasing insurance, and the benefits still suit your coverage needs, you have the ability to request for that coverage to be renewed.
However, requesting a term renewal isn’t as simple as continuing to pay your premium.
Renewing term insurance is subject to an increase in your premium due to your age or health, depending on the coverage you have and the company’s policy agreement.
Financially, switching from a term policy once age and health become a factor is often beneficial.
Whether you’re enrolled in a level term policy for stability, or a decreasing policy because your children no longer financially depend on you, you will retain the option of changing your coverage.
If you decide to switch policies, simply request to do so before your term ends.
2. Permanent Insurance
Permanent insurance policies are a life-long commitment.
This form of insurance offers coverage for your entire life without terms or renewal.
Renewing your policy is paying your premium each month. As long as you continue making your premium payments, you’re covered.
Whole Life Insurance
A whole life insurance policy is permanent insurance that accumulates a cash value during your life and pays your beneficiaries at the time of your death.
Your premium is based on your age at the time of enrollment, providing fixed coverage for life.
Enrolling in a whole life insurance policy at a young age is preferable.
The premium of your policy can increase due to age or health, so the younger you are at the time of enrollment, the lower your premium.
A whole life insurance policy is also a policy that builds a cash value over the course of your coverage.
Cancelling your policy will result in the cash payment of your account’s accumulated value, with fees and charges deducted based on your policy’s terms.
There are several subtypes of whole life insurance:
- Limited payment life policies
- Modified-premium whole life policies
- Graded premium policies
With a limited payment life policy, you have a limited term of premium payments.
However, even once these payments end, you remain covered for life by your policy.
As with general whole life insurance, you will accrue a cash value that is payable on cancellation.
While the premium payments are higher than a typical whole life premium, you are only limiting your payment responsibilities to a predetermined term.
Modified-premium whole life insurance policies carry a premium that is lower than normal for a given term.
This allows you to pay less for full coverage, but only for a set amount of time.
Once your term is over, your premium is significantly increased. This increase accounts for the previously lowered payments.
You will keep the higher premium over the course of the policy.
A graded premium life insurance policy is life insurance that is modified annually to provide you with the same amount of coverage.
Each year, the premium amount you pay will increase gradually until they reach a set premium.
The final premium amount is the amount that is paid over the remainder of the policy.
Adjustable Life Insurance
An adjustable life insurance policy enables you to change your policy at any time during your policy term.
You’re able to increase or decrease the “face amount” (death benefit amount) of your policy, increase or decrease your premium amount, and even change the duration of paying your premium.
Keep in mind that changes, such as decreasing your premium or changing the longevity of your payments, will change your coverage.
While adjustable insurance is designed for affordable and flexible coverage, you must be sure you aren’t cutting corners with your coverage if you don’t have to.
Additionally, the adjustable life insurance option carries accrued interest over the course of your policy.
You are covered for life by your policy, with the addition of automatically building your cash value.
Essentially, your premium payments are divided by the insurance company into protection, investment, and expenses.
You will receive a report of these divisions annually.
Therefore, you are insured for life, while you are also earning interest on the invested amount accruing from your premium payments.
The more you pay in your premium payments, the more you are investing.
Your investments will accrue the minimum amount of interest available, but your rate will change as you grow your account.
Your additional investment through your adjustable life insurance policy allows for a higher payout to your beneficiaries.
Variable Life Insurance
A variable life insurance policy is permanent life insurance that invests part of your premium, just like whole and adjustable life insurance.
This coverage provides you with a flexible premium that can be adjusted to your financial needs.
However, any adjustment in your premium payments will result in changes to your coverage.
The difference with a variable life insurance policy is that your premium will likely remain the same over the course of your policy.
Therefore, a variable life insurance policy can be more budget-friendly.
The possible downfall, however, comes from the uncertainty of your overall cash value at your time of death.
Unlike whole life and adjustable policies, you are in charge of where your premium is being invested.
If you invest poorly, or the stock you’ve invested in performs poorly at the time of your death, your beneficiaries will receive a lower cash value than you may have anticipated.
Conversely, if your investments perform well in the year that you die, your beneficiaries will receive more than your estimated cash value.
Choosing a variable life insurance policy is a risky investment.
However, the risk you take investing can lead to high payouts for your beneficiaries.
3. Endowment Life Insurance
An endowment life insurance policy operates differently than the previous policies because it pays out in full.
When you die, your policy will pay the fixed lump sum to your beneficiaries–no month-to-month or annual payments.
Just a single lump sum of cash value on your policy.
The insurance payout is paid to you before you die if your term ends during your lifetime.
Otherwise, those benefits are inherited by your beneficiaries.
While this option is a bit pricier in premium payments, it is an easier way to provide your family with ready-cash for the liabilities that you are leaving behind.
4. Group Life Insurance
A group life insurance policy is generally owned by employers to cover employees.
A group life insurance policy is often a part of your company’s benefits package, since the policies are normally held by larger companies with many employees to cover.
These packages can cover you and your immediate household, depending on the package offered by your employer.
One policy can cover an entire group, so you, your co-workers, and your families will likely be covered under the same insurance plan.
With group life insurance, you receive proof of insurance, but you are not the policyholder of the insurance policy.
Your employer is providing the insurance, and therefore remains the policyholder by contract.
You will, however, have the ability to name the beneficiaries of your policy.
Group life insurance is considered a term life insurance policy because it is an annual renewal process.
The premiums are paid in part or in full by your employer throughout the coverage year.
Although this is a term life insurance option, it is one that can only be offered through employment, as it is designed to cover larger parties of employees and workers.
5. Credit Life Insurance
If you are concerned that you may someday leave your debts to your children and grandchildren, a credit life insurance policy could help you.
With a credit life insurance policy, you are saving in the anticipation of settling your liabilities at the time of your death.
Paying your premium accrues into an account for your policy.
Once you die, the funds from your policy account are managed into payments for creditors and to settle outstanding debt collections.
This form of life insurance protects your beneficiaries from inheriting the debts that you leave behind, while settling them in your absence.
However, some lenders may require a credit life insurance policy in their fine print to cover lending larger amounts to individuals.
6. Guaranteed Issue Life Insurance
Registering for a guaranteed issue life insurance policy is possible regardless of your health.
You cannot be turned down due to poor health or medical history.
However, a guaranteed issue life insurance policy will generally offer low benefits and high premiums.
These insurance plans are beneficial if you’re older and looking for additional coverage, or if you’re lacking full life insurance coverage due to poor health.
With other insurance policies, health and age are a consideration for coverage and premiums.
While you will be paying a higher premium payment, you will have the peace of mind knowing that you’re covered.
Keep in mind that guaranteed issue life insurance is meant to finance your final services, not settle the debts of your estate.
Policy death benefits are minimal, but designed to be enough to keep your family from bearing the responsibility of your funeral expenses.
Guaranteed issue life insurance policies are not lifetime coverage policies, and they carry a low cash value.
If your health allows, it’s wise to enroll in full coverage life insurance elsewhere. A guaranteed issue life insurance policy is a great way to supplement your existing coverage.
Establishing a Virginia life insurance policy is an important part of your Virginia estate plan.
It covers you, your family, and your beneficiaries in life, and provides financial security that is ongoing and dependable.
Schedule a consultation with an estate planning attorney to discuss your insurance options.