In addition to term life insurance and permanent life insurance, there are a few alternative and less-common types of life insurance.
Joint Life Insurance: This is a life insurance policy (usually permanent, not term) that covers more than one person, often a married couple. With a "first-to-die" policy, the surviving spouse is paid a death benefit if their husband or wife dies. With a "second-to-die" policy, the death benefit is paid out when the second policyholder dies. In those cases, the children or other beneficiaries get the death benefit. Second-to-die policies are sometimes used to manage estate and inheritance taxes.
Mortgage Life Insurance: These policies are marketed as a way to pay off a mortgage if the main financial breadwinner passes away. Most financial planners agree, however, that mortgage life insurance is a bad investment. Premiums can spike unexpectedly and the value of the policy actually goes down as time passes, since the balance on the mortgage reduces year after year.
Credit Life Insurance: Like mortgage life insurance, credit life insurance is designed to pay off the balance of a specific loan — home equity loan, car loan, etc. — if the policyholder dies. The benefit of such a policy is the peace of mind of knowing that the debt won't be passed on to surviving family members. The drawbacks are that the value of the policy decreases over time even as premiums stay the same, and that the real beneficiary is the lender, not the survivors.
Final Expense Insurance: You've probably seen the touching ads for this one on TV. This insurance takes care of any costs associated with one's funeral and burial, so your loved ones aren't stuck with the expenses. It may pay out anywhere between $5,000 and $25,000 for usually a small amount of money in premiums. However, many experts say it's a bad deal. You could probably get the same benefit without buying a policy, simply by putting away $50 a month toward funeral expenses in a savings account. Or you might be able to get a term life policy with a lot more benefits for the same monthly premium.
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