Life insurance is more than just a financial tool. It’s a powerful safety net that provides security and peace of mind for individuals and their loved ones. In this blog, we unpack everything you need for understanding life insurance, the basic features and pros and cons of each type of policy, and steps you can take to make sure your family is financially protected, now and in the future.
What is Life Insurance?
At its core, life insurance is a contract between an individual and a life insurance company. The individual, known as the policyholder, pays regular premiums to the insurance company in exchange for a predetermined sum of money, known as the death benefit. This benefit is paid to the beneficiaries named in the policy upon the policyholder’s death.
Pretty straightforward, right? What many people don’t realize, however, is the many ways they can use life insurance to help with income, education expenses, debt, estate planning, or even business expenses.
Who Needs Life Insurance?
The simple answer: everyone. The need for life insurance varies depending on individual circumstances. Some can benefit from it in their 20s, while others may not need it until they are older. Regardless of age, First Mid Insurance Group strongly recommends life insurance for the following individuals or situations:
- Main Income Providers
- Parents or Caregivers
- Homeowners
- Business Owners
Common Types of Life Insurance
Understanding the different types of life insurance is crucial when selecting a policy that aligns with your unique needs and circumstances. From pre-paid funeral policies that offer a few thousand dollars to policies with face values of over $100 million, each type has its own set of features, suitability, and pros and cons.
Carefully evaluating your goals, financial situation, and future plans can help you make an informed decision and provide you and your loved ones with the necessary protection and peace of mind. Clay Dean, CEO of First Mid Insurance Group, also offers some words of wisdom on choosing the right life insurance plan:
“When trying to figure out which life insurance plan is best for your situation,” shares Dean, “I highly recommend talking to an insurance agent who will ask you specifically about your needs, life planning concerns, special situations, and budget. Depending on these factors, the agent can create a customized solution that fits your unique circumstances.”
1. Guaranteed Issued Life Insurance
Guaranteed issued life insurance is a type of policy that does not require a medical exam or health questions. It is typically available to individuals with pre-existing health conditions or those who have been declined coverage elsewhere.
- Best Fit: People who have difficulty obtaining traditional coverage due to health issues
- Pros: Easy application process; no medical exam required
- Cons: Higher premiums compared to other types of life insurance; lower coverage amounts
2. Term Life Insurance
Term life insurance provides coverage for a specific period, typically 10, 20, or 30 years. It offers pure death benefit protection without cash value accumulation.
- Best Fit: People with temporary coverage needs, such as those with young families, outstanding debts, or mortgage obligations
- Pros: Affordable premiums, straightforward coverage, and flexibility to match coverage duration with specific needs
- Cons: No cash value accumulation; coverage expires at the end of the term unless renewed or converted
3. Whole Life Insurance
Whole life insurance, a type of permanent life insurance, provides coverage for the entire lifetime of the insured. It combines death benefit protection with a cash value component that grows over time.
- Best Fit: People who want lifelong coverage, estate planning, or cash value accumulation
- Pros: Lifetime coverage, cash value accumulation, and potential for policy dividends
- Cons: Higher premiums compared to term life insurance; limited flexibility in premium payments
4. Universal Life Insurance
Universal life insurance offers flexible premiums and death benefit amounts. Another form of permanent life insurance, it also includes a cash value component that grows based on interest rates and policy performance.
- Best Fit: People who want flexibility in premium payments and the potential for cash value growth
- Pros: Flexibility in premium payments, cash value growth potential, and ability to adjust death benefit
- Cons: Complexity in policy structure; potential for higher costs if cash value growth is insufficient to cover premiums
5. Indexed Universal Life Insurance
Indexed universal life insurance combines elements of universal life insurance with the potential for cash value growth based on the performance of a stock market index. It is the final type of permanent life insurance.
- Best Fit: People who want potential higher cash value growth linked to market performance
- Pros: Potential for higher cash value growth; flexibility in premium payments
- Cons: Policy complexity, limited upside potential compared to direct market investments, and potential for higher costs
6. Long-Term Care Insurance
Long-term care insurance provides coverage for long-term care expenses, including nursing home care, assisted living, and in-home care services.
- Best Fit: People concerned about potential future long-term care costs who want to protect their assets
- Pros: Covers long-term care expenses, protects assets, and preserves independence and choice
- Cons: Premiums can be costly; potential for rate increases; coverage limitations
7. Pre-Paid Funeral Expense Policies
Pre-paid funeral expense policies, sometimes referred to as burial insurance, allow individuals to plan and pay for their funeral arrangements in advance. The policy covers the costs associated with funeral services, burial, cremation, and related expenses.
- Best Fit: People who want to alleviate the financial and logistical burden of funeral arrangements for their loved ones
- Pros: Relieves family members from making funeral arrangements and associated financial decisions, locks in current prices, and provides peace of mind
- Cons: Limited coverage to funeral expenses only; potential limitations on choice of funeral services or providers
8. Life Insurance for Children
Life insurance for children provides coverage for minors. These policies typically have lower coverage amounts and are designed to protect against potential future insurability issues.
- Best Fit: Parents, grandparents, or guardians who want to secure coverage for their child or grandchild at a young age and potentially build cash value over time
- Pros: Affordable premiums, coverage locks in at a young and healthy age, and potential for cash value growth
- Cons: Limited coverage amounts compared to policies for adults
Getting Started with First Mid Insurance Group
Ready to start the process of finding the right life insurance for you? First Mid Insurance Group has nearly 100 licensed agents ready to help! Through our network of highly rated insurance carriers, you have access to all life insurance products that are not related to the stock market. This includes guaranteed issued life, term, whole life, universal life, indexed universal life, long-term care, pre-paid funeral expense policies, life insurance for children, and more!
To get a life insurance quote, simply fill out this form with some basic information. The First Mid Insurance agent nearest you will reach out to you for more specific information and options.
First Mid Insurance Group, Inc. is a wholly-owned subsidiary of First Mid Bancshares, Inc. and an affiliate of First Mid Bank & Trust, N.A. Insurance services are not deposits or obligations of the bank, are not insured by the FDIC or any governmental agency, and are not guaranteed.
