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Life Insurance Buyer’s Guide

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Whole Life Insurance

Owning a whole life insurance means you are covered for your lifetime and not just for a limited period. It is the most popular life insurance product when you want to secure the future of your family. It is however a costly life insurance product. 

Albeit more expensive than other life insurance products it can accumulate cash value. There are also instances when mutual life insurance companies pay out dividends (additional face value).

Whole life insurance is a permanent asset because it increases in value through the years. It also belongs to you during your lifetime. 

You should only consider getting a whole life insurance after your have made maximum contributions to your retirement funds such as IRAs and 401 k. 

Whole life insurance is suitable for individuals who seek protection for their entire life and want a life insurance product that accumulates cash value. Whole life insurance is part of the process of many advanced wealth strategies.

Whole life insurance on the other hand is not suitable for individuals seeking an inexpensive life insurance product. It is also not for individuals who prefer limited time coverage.

Term Life Insurance

Term life insurance gives you protection for a specified period. In some cases, production can reach until after thirty years. It does not come with the costs commonly part of other types of life insurance policies.

Many term life insurance policies have available riders or additional benefits. It also comes with living benefits so you can use the benefits of your policy when you become critically or terminally ill and have been diagnosed to less for less than 1 or 2 years.

Term life insurance is a simple insurance product. It is ideal for individuals searching for the most affordable life insurance policy. This is a popular life insurance policy as well for individuals who want temporary coverage for a specific period. 

If you have children or other dependents that rely on your income, this is the best life insurance policy for you.

Term life insurance on the other hand is not suitable for individuals wanting to have a life insurance policy that will last for his entire lifetime and building cash value to boot. 

Universal Life Insurance

Universal life insurance is a cross between whole life and term life insurance. A portion of the premium you pay for your universal life policy covers the cost of the insurance and the other forms part of a cash account which as a guaranteed minimum annual growth rate of about 3%. 

The cost of a universal life policy increases annually and the growth rate of the cash account (portion of paid premiums) covers the rising cost of the coverage. 

Many universal life policies/ guaranteed universal life policies are similar to term life insurance policies in the sense that they focus more on level premiums (up to 121 years old). They also give do not focus as much on the growth of the cash value.

Universal life insurance is therefore purchased by individuals, particularly the older ones who want coverage for their lifetime and are not too interested in the growth of the cash value of their coverage policy.

A universal life insurance policy is suitable for individuals who want to have a life insurance coverage policy for their lifetime with the least possible cost.

On the other hand, this life insurance coverage is not for individuals who need a coverage policy only for a specific period. 

Accidental Death Insurance

An accidental death insurance policy, together with a dismemberment (AD&D) policy is the cheapest available life insurance policy. This coverage policy does not require potential plan holder to answer medical questions or undergo a medical examination because the policy coverage is only paid when an accident is the cost of death. 

Many accidental death insurance policies double the payout to the beneficiaries when the plan holder dies on a commercial carrier (bus, train, or plane).

Accidental death insurance is ideal for frequent travelers. It is suitable for individuals who are under 60 years and are on a limited budget. This policy is also suitable for individuals who do not qualify for insurance policies that need health underwriting. 

On the other hand, accidental death insurance is not suitable for individuals who can easily qualify for a traditional life insurance policy but have yet to get one. It is also not suitable for individuals over 60 years old. 

Guaranteed Issue Life Insurance

Guaranteed issue life insurance is designed to cater to older consumers although some insurance companies offer this insurance product to people of all ages, too. This policy is more expensive than other insurance policy products. It also has a lower death benefit (up to only $25,000).

The underwriting process of this insurance policy does not include medical questions and a medical example. These policies get approved quickly, too. 

Not too many insurance agents recommend this type of insurance coverage because the amount of the death benefit can end up lower than the total amount of paid premiums. 

A guaranteed issue life insurance is suitable for individuals who do not qualify for standard life insurance policies due to their medical condition. It is also suitable for individuals who need a burial insurance coverage to help with costs and debts upon death. 

Return of Premium Life Insurance

This is the least popular life insurance policy. This life insurance policy is similar to a normal term life insurance policy but you get all your money back at the end of the policy. 

You can get a traditional term life insurance policy at a lower cost but with the same coverage as a return of premium life insurance. However, you will not get your money back.

When a return of premium life insurance policy expires, the insurance company does not keep your money, it therefore comes with a high price.

 In getting a premium life insurance you are having a forced savings account which you will get in full are the end of the term of your insurance policy. 

A return of premium life insurance policy is suitable for individuals who want a refund on their paid premiums when their policy ends its term. It is also suitable for individuals who have difficulty saving on their own

On the other hand, the return of premium life insurance is not for individuals who do not have the budget for an expensive insurance policy. It is also not suitable for individuals who have contributed the maximum amount to their retirement investments. 

No Medical Exam Life Insurance

The no medical exam life insurance is more expensive than a fully underwritten policy. It however only has a coverage amount of less than $300,000 to $500,000 but it does not require a physical examination to qualify.

 The underwriting process of this insurance policy gives importance only to a few health questions and electronic records to approve an applicant.

The no medical exam life insurance is suitable for individuals who do not like to undergo a medical examination in the underwriting process. It is also for individuals quickly want to be issued a policy faster than the issuance of a fully underwritten policy.

On the other hand, the no medical exam life insurance is not suitable for individuals who want a policy coverage of over $1,000,000.  This is also not suitable for individuals who can wait 4-8 weeks for a policy to be issued and do not mind undergoing a medical exam. 

Instant Issue Life Insurance

An instant issue life insurance policy is typically issued on the same day you requested for a quote. In some cases, it is issued even just within a few hours. This is not the most affordable insurance policy you can find but as technology improves and evolves its cost is fast becoming lower. 

The quick issuance of this policy is credited to the databases and consumer reports available across the United States. They allow life insurance companies to be able to quickly analyze an applicant’s risk and instantly underwrite his policy. 

An instant issue life insurance policy is suitable for individuals who quickly need a life insurance policy within 24 hours for securing business loans and legal reasons. It is also suitable for those who do not have the patience for a long underwriting process. 

On the other hand, it is not suitable for individuals who need the most affordable life insurance policy or those searching for one focusing mainly on the cost. 

Everything You Need to Know about your Affordable Life Insurance Policy

  1. What is the least expensive life insurance policy?

A term life insurance policy is often the least coverage policy because they only provide payout during a certain period. The cost of this life insurance policy varies depending on your age and health condition. 

  1. Do life insurance policies have expiration dates?

A term life insurance policy expires at the end of a predetermined period. Permanent life insurance policies (e.g. universal or whole life) do not have expiration dates but do get cancelled if you do not pay premiums. 

  1. Can you cash in on a life insurance policy?

Permanent life insurance policies (whole or universal) may have a cash value. Term policies, however, do not have accumulated cash values.  Life insurance policies with a cash value feature may be cancelled or surrendered to get the accumulated cash value amount. You can also take out a loan against the accumulated cash value.

  1. Can you sell your life insurance policy?

Yes. You can sell your insurance policy (universal or whole life policies) to a life insurance settlement company. These companies are interested to buy life insurance policies with cash value features. 

Depending on the life insurance settle company and the type of life insurance policy you are selling, you will usually be paid the equivalent of 50% to 70% of the expected death benefit. 

  1. Can I use my life insurance policy as collateral?

Depending on the requirements of the institution issuing the loan, you can use the cash value feature of your permanent life insurance policy as collateral for business loans. The proceeds of the loan are often paid to the beneficiary of your insurance policy.

  1. Can I have more than one life insurance policies?

Yes. It is not uncommon for individuals to have more than one life insurance policies. In most cases individuals have a term life policy for their business, a whole life policy, and an accidental death insurance policy. 

Some individuals have a group life insurance policy as a benefit at work and a personal term life insurance policy. 

  1. Can anyone take out a life insurance policy on you?

Yes, this is possible but insurance companies have strict compliance policies because the laws on this have changed. The individuals seeking the take out must prove that the death of the individual being covered by the life insurance policy will have a financial impact on them. They also need to obtain an authorization from the individual covered by policy.

For example you want to take out life insurance of your aging parent. Although the death of your parent may have a financial impact on you, you still need to secure an authorization from your parent for the coverage. It is less complicated for your parent to get his own life insurance policy and list you as the beneficiary.

  1. How a life insurance policy works?

Life insurance policies are legal contracts thus the insurer (life insurance company) offers to cover the insured (you) as per the terms in the policy (contract). The insurer pays the person/s named as beneficiaries in the policy the death benefit (agreed upon amount as stipulated in the policy (contract) in exchange for paying premiums (agreed upon amount). 

  1. What is the difference between a life insurance policy and an annuity?

A life insurance policy provides protection should you die sooner than expected. An annuity provides protection if you live longer than expected. Annuities are offered by life insurance companies so consumers can protect themselves from not having any income during retirement.

As soon as the annuity becomes annuitized, disbursements start to be given. Disbursements can be for a few months or throughout the life of the surviving spouse of the owner. 

Insurance companies require either an upfront lump sum payment for the annuity or regular contributions for a certain period just like a 403(b), a retirement fund for non-profit organizations and government employees. 

  1. What are life insurance policy loans?

Policy holders can take a loan against the cash value of their permanent life insurance policies (if it has a cash value feature) to access funds. Should the insured die before full payment of the loan, the unpaid amount is deducted from the total payout of the death benefit.

Which type of life insurance policy is best for me?

There is no “best” life insurance policy. To determine the best policy for you means knowing why you are getting a life insurance policy and your financial goals. 

To know which life insurance policy to choose, you need to have a full understanding of your current and future needs.

Most people choose a basic term life insurance policy because they believe it is the best option for their needs. Some opt for permanent insurance policies because they believe a whole life or universal life is the best options. 

Why Choose Aha? 

There is a need to understand the difference between searching for a life insurance policy and searching for the right life insurance policy. Insurance policies are sold almost anywhere. The question though is, it is the best? 

More importantly, does it meet your goals and needs; is the insurance policy being sold to you because a sale needs to be made? Is there anyone you can trust who is honest enough to give you the lowest rates? 

Aha offers a widest section of life insurance companies committed to offering policies that we would offer to the members of our own families.


February 3, 2020 - Reading time: 36 minutes