Types of Life Insurance

There are many types of life insurance to learn about. I will give a brief overview of the most popular in my opinion. A few of the products listed are technically health insurance, but I include them because they are closely related to life insurance. To make it easier, I sorted the types of insurance in alphabetical order.

Accidental Death - this type of insurance has the most loopholes for an insurance company to deny a claim. Not only does a death have to result from an accident, but it also must occur within a certain time frame of an accident. For instance, if someone is severely injured from a car accident, but he dies 12 months later, the death is no longer considered accidental. This product is very cheap due to the low volume of paid claims.

Accidental Death & Dismemberment - this type of insurance is very similar to accidental death (see above). It also offers a percentage of the death benefit for loss of limb or blindness from an accident. I normally don’t recommend this product for someone living a sheltered life. People in hazardous occupations and motorcycle riders might want to look into this. Depending on the insurance company, there might be underwriting restrictions for certain occupations or hobbies.

Cancer - this type pays for a first occurrence of cancer. Definitely pick the policy up if you have a family history of cancer.

Critical Illness - this type pays for heart attack, stroke, or cancer. This type of policy is starting to become irrelevant as more and more term life policies include critical illness riders. Check your term life policy for a critical illness rider before you consider a stand alone critical illness plan.

Graded Whole Life - this is a subtype of modified whole life. Graded whole life has significant coverage restrictions for the first two or three years. People generally purchase this type because they don’t qualify for something better.

Limited Pay Whole Life - this is ordinary whole life with a predetermined number of premium payments. Some versions ask for 10, 15, or 20 years of payments. Other versions will stop payments at age 65 or 85. After the predetermined number of payments, the policy is paid up in full (coverage continues for life without any more payments).

Modified Whole Life - this is a broad category that includes any form of whole life that has changing benefits. Ordinary whole life has unchanging benefits.

Simplified Issue Whole Life - this is the most common type of life insurance for funding a cremation or burial. It is known by other names such as burial insurance or final expense insurance. With this plan there is just enough underwriting to keep premiums reasonable, but there is no invasive underwriting like bloodwork or paramedical exams.

Term Life - this type offers a set number of years with unchanging premiums. After the period of unchanging premiums, the rates start to climb dramatically. Obviously this type is only intended for temporary liabilities. There is no cash value with term life.

Hopefully you have learned something useful about the different types of life insurance. These types of life insurance are discussed in greater detail on my blog.

Chris Topping is a life insurance agent serving Houston and surrounding cities for over 8 years.