Planning for your future requires a variety of steps - one of which is selecting a life insurance plan. This choice is an important one which can provide valuable financial support for your loved ones in the event of your death. Understanding your options is the first step in making the best choice for your specific needs.
Read more: Save for the future with Ally Bank's buckets and boosters
How does life insurance work?
Life insurance is a policy where you pay a monthly premium and, in return, your insurance provider ensures your beneficiaries are covered financially when you die.
5 common types of life insurance
Factors | Whole | Term | Variable | Universal | Final expense |
|---|---|---|---|---|---|
Coverage period | Entire life of the insured | A set time period, usually between 10 and 30 years | Entire life of the insured | Entire life of the insured | Entire life of the insured |
Cash value component | Yes | No | Yes | Yes | Yes |
Premium | Usually fixed | Can vary | Can vary | Can vary | Usually fixed |
Death benefit | Yes, usually | Yes, usually | Yes, usually | Yes, usually | Yes, usually |
1. Whole life insurance
As a type of permanent life insurance, whole life insurance provides lifelong coverage and includes a cash value savings component that grows over time.
Pros
Benefits include a guaranteed death benefit, cash value accumulation and the ability to use the cash value as a source of funds for emergencies, college tuition or to supplement retirement.
Cons
Coverage typically has higher premiums than other policies, making it less affordable for some individuals.
2. Term life insurance
This type of policy provides coverage for a specific period and offers a death benefit to beneficiaries if the insured dies within the term.
Pros
It’s generally less expensive than permanent life insurance policies.
Cons
The policy ends when your term does. If you become uninsurable during that time, you could have difficulty qualifying for another affordable term policy.
Term life insurance is generally less expensive than permanent life insurance policies.
3. Variable life insurance
This is another type of permanent life insurance that combines lifelong coverage with an investment component.
Pros
This policy can have significant tax advantages, such as tax-deferred accumulation of earnings. You can also access the cash value with a tax-free loan (unpaid loans reduce the death benefit).
Cons
Variable life insurance is more expensive than term, and the cash value can grow or decrease based on the performance of the underlying securities in the policy.
4. Universal life insurance
Similar to variable life insurance, universal also has a cash-value component, but it grows based on the current interest rate set by the insurer.
Pros
With this type of coverage, your cash value grows tax-deferred, and the death benefit is typically tax-free to beneficiaries.
Cons
Cash value growth is tied to the market, and lower growth may require higher premiums to maintain the death benefit.
5. Final expense insurance
Also referred to as funeral or burial insurance, final expense insurance is a term policy that covers the costs of your funeral, burial and other end-of-life expenses.
Pros
It's typically easy to get approved for a policy because it doesn't include many of the health-related questions connected to other life insurance options.
Cons
The death benefit is typically much smaller than traditional policies.
Other types of life insurance
In addition to the common life insurance policies discussed, you may also want to consider:
Mortgage life insurance: Designed to pay off your mortgage.
Credit life insurance: Pays off outstanding balance on a particular loan.
Accidental death and dismemberment insurance: Provides a payout if you die due to a covered accident.
Joint life insurance: Covers two people, commonly domestic partners, married couples or business partners.
Filing a life insurance claim
Receiving the death benefit starts with your beneficiaries filing a claim with the insurance company. To do so, they’ll need copies of the death certificate, insurance policy and any other required forms.
Which type of life insurance is best for me?
It's important to understand the ins and outs of each option. If you’re ready to explore your options, Ally Insurance is referring you to Ladder for an innovative approach to term life insurance with an easy online application process and a variety of coverage types. Start by using your family's specific needs and personal financial goals as your guide to finding the right fit.
Disclosures: Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers – for further details see www.ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.2203.9-LDRev 3/22
