As you search for the best Whole Life Insurance policies online, you might come across terms like “Level Premiums vs. Stepped Premiums” and “Straight Life policy vs. Limited Pay Life policy.” You may ask, “What type of premium would I pay on a Straight Life policy?” Or wondering, “What is the difference between stepped and level premiums anyway?”
You need answers, and I’ve got your back!
This article explains everything you need to know about the Straight Life policy and the Limited Pay Life policy. After this quick read, you’ll learn how they relate to the two main types of life insurance premiums. You’ll also discover which policy is best for you and how to use it to find Whole Life Insurance coverage most suited for your family.
What is a Straight Life Policy?
A Straight Life policy allows you to pay fixed installments throughout your entire coverage. A Limited Pay Life policy is slightly different. When insurance agents mention either type of policy, they usually refer to Whole Life Insurance.
Whole Life Insurance is a type of permanent life insurance that guarantees the release of funds to your beneficiaries when you die, as long as you continue paying your regularly scheduled premiums. As a type of permanent life insurance, the average Whole Life policy is expected to last until the insured dies.
In reality, these life insurance policies are set to expire (or mature) between the ages of 100 and 120. Once the term expires, the insurance provider releases the death benefits to the insured person. However, most policyholders never meet the age requirements for insurance maturation, so this rarely happens.
What is a Limited Pay Life Policy?
The Limited Pay Life policy allows you to pay off your entire Whole Life Insurance within a specific time. This differs from a Straight Life policy, which is arranged for you to make installments on your Whole Life Insurance policy for its entire duration.
You may choose to cover your Limited Pay Life policy premiums monthly, quarterly, or annually via a:
- 7-Pay Life Insurance Payment Plan – where you cover the entire cost of your life insurance within the next seven years. For example, if you begin your Whole Life Insurance at age 49, you will pay your coverage in full by age 56, according to your Limited Pay Life policy.
- Up-to-65 Payment Plan – where you complete your insurance installments before you retire at age 65.
- Customized Payment Plan – where you decide whether to complete your premium payments within 5, 10, 15, or 20 years. Alternatively, you and your Limited Pay Life policy insurance provider can create a plan that allows you to complete your life insurance payments by a specific age (usually before retirement).
Does my insurance coverage stop once I complete payments?
No. You will remain covered by your permanent Whole Life insurance policy until you die. However, you won’t have to worry about paying premiums if you’ve paid your policy early. That’s one less responsibility you can check off your to-do list!
A Straight Life Policy Has What Type of Premium?
A Straight Life policy uses level premiums to pay off your Whole Life Insurance coverage.
If you’re unsure what that means, I want you to imagine a bar chart. All of the bar chart’s columns are leveled, meaning they’re all the same height. Now, if we say that a Straight Life policy has level premiums, it means you’ll pay the same amount of money for installments month after month.
On the other hand, some permanent life insurance policies include yearly premium increases. For instance, Index Universal Life insurance premiums increase by steps as you age. The older you are, the more expensive your premiums. For this reason, we refer to these as “stepped premiums.”
The use of Straight Life policy level premiums vs. stepped premiums is one of the main differences between Whole Life Insurance and Index Universal Life Insurance. Both of these models are different from a Limited Pay Life policy.
To recap: A Straight Life policy uses level premiums.
Straight Life Policy vs. Limited Pay Life Policy: Which Has Cash Value?
The Straight Life policy and Limited Pay Life policy are payment options for your life insurance coverage. They don’t affect specific features of your life insurance policy.
If you want to know if your life insurance policy includes a cash value component, you need to understand how term life differs from permanent life insurance. Term life insurance does not have a cash value component to increase your income, while permanent life insurance policies do.
Both the Straight Life policy and Limited Pay Life policy are options for paying Whole Life Insurance coverage. Therefore, you’d be able to invest and potentially earn more cash with either one of these payment avenues!
With Limited Pay Life, you can pay your premiums in advance, but your cash value still grows until coverage ends.
Who is a Straight Life Policy Best Suited For?
Straight Life policy premiums are cheaper than those on a Limited Pay Life policy because you have more time to cover your insurance. Limited Pay Life policyholders usually pay for their coverage in 20 years or less.
If you have a 7-Pay Whole Life Insurance Plan valued at $100,000, you’d have to pay that amount within the next seven years. Not everyone can afford that. A Straight Life policy is best suited for people seeking affordable premiums that they can track over an extended period.
Should I Get a Limited Pay Life Policy Instead?
A Limited Pay Life policy is ideal if you want to supplement your retirement income. Once you’ve finished paying your premiums, your Whole Life Insurance cash value will continue to grow at a fixed interest rate until the end of your policy.
You can access the cash from your investment account to fund a loan, cover unexpected senior care expenses, or experience retirement from a tropical destination (I might have a few travel suggestions). In fact, if you know how to use your Whole Life cash value strategically, you could potentially earn enough profits to cover your retirement entirely!
Which is the Best Life Insurance Payment Policy for Me?
As I mentioned earlier, the Limited Pay Life policy isn’t for everyone despite its perks. The closer your deadline to completing coverage payments, the more expensive your premiums will be. A Straight Life policy can provide more wiggle room for your budget, giving you more time to finalize your retirement plans.
A licensed financial agent can help you understand which option is most suitable for you. Our insurance planning consultations are always free here at The Purpose of Money. Schedule a call with us today to learn which Whole Life Insurance payment plan can best support your long-term financial goals!