Life insurance protects your family in case of unexpected death. However, many people don’t think about it leaving their family vulnerable to financial difficulty. Having insurance will not only give you peace of mind, but it will ease your family’s burden. Choosing a policy among the many options can seem like a scavenger hunt, but it helps to know the options. Use this information to help you determine which kind is right for you.
Types of Life Insurance
Here are the main types of life insurance:
Term life insurance works exactly like it sounds, and it’s the most basic policy. You buy coverage for a specified time period for a fixed pay rate. If you don’t die within this period, you can renew it let it lapse, or change to permanent coverage. If you choose a reentry policy, it may cost more or less based on your age and health at the time. Some providers offer a simple issue policy option for people considered high-risk which doesn’t require a medical exam. Term life is commonly sold in 5-year time periods and marketed toward younger people. It attracts buyers because it commonly costs less, since it doesn’t build cash value.
As the name implies, you are covered for life under a whole life policy. This coverage typically spans from 10 to 30 years. The rates won’t change regardless of your age or health as long you pay premiums on time. In addition to paying death benefits, it has a savings, or cash value component, which is useful for financial emergencies. You only pay taxes on the cash value if you withdraw the money. The cash value slowly grows due to, since payments go toward the agent’s commission and insurance. However, your family will know exactly what they will get with fixed rates. To increase cash value, the insured can make more than minimum payments.
Universal insurance works the same as whole life, but it provides more flexibility. It is a cross between a savings account and insurance. You get to choose the amount that goes into cash value and toward premiums. Another difference between universal and whole life is the policy places more risk and responsibility to manage the death benefit on the insured. Some providers may require a lump sum premium payment upfront.
How Do You Decide Which to Choose?
The policy you choose depends on many factors. Ask yourself some of the following questions:
Am I the sole income provider?
Are you a stay-at-home parent or divorced?
DO you work with a business partner?
Are you in the military or in a military family?
Are you healthy with no long-term illness?
Is your budget restricted and you need a large amount of coverage?
Do you think your financial needs may change?
Answering yes to any of these questions would suggest term life would benefit you. If you have a high net worth or special needs child, whole life or universal may be best. If you think your financial situation or needs could change, a term-life convertible policy could be the one to choose.
It is not a matter of if you need a policy, but when you need it. Unlike other types of insurance, you will use it and protect your family from the unexpected.