If you’re researching the different types of life insurance policies available, then you’re probably wondering what the best type of life insurance policy is to protect you and your family.
There are several types of life insurance policies available.
The first type of life insurance policy is term insurance and is available in 10-, 15-, 20-, 25-, and 30-year terms. Aside from being the most affordable of all the insurance policies, the biggest benefit to term insurance is that the premiums are guaranteed level for the entire term of the policy. This means that no matter what happens to your health during the length of the policy, the insurance company cannot increase your premiums.
When selecting the term length, consider the age of your children, retirement age as well as the time remaining on any significant outstanding debts (for many people this would be your mortgage payment).
I personally chose a 30-year term because we’re just starting a family and will soon finance a home with a 30-year mortgage. If I pass away within the next 30 years, I don’t want to leave my spouse with a mortgage payment. If your situation isn’t as cut and dry and you’re not sure which term length to consider, please call us and we’ll be happy to assist you with this decision.
Also consider if you’ll still need coverage longer than your term, as once the term expires, the premium payments will increase and they might not be as affordable as they once were. If you think you’ll outlive the term and will still need insurance, consider permanent insurance or a combination of both.
The second type of life insurance policy is permanent insurance. Unlike term insurance, permanent insurance does not expire after a certain period and is available throughout your life for as long as the insurance premiums are paid.
One type of permanent insurance is whole life. Whole life insurance has two components to it – a savings portion and an insurance portion. One of the benefits of purchasing a whole life insurance policy in addition to the standard death benefit (the insurance portion), is the ability to build cash value over time (the savings portion). The cash value in the policy can be accessed through loans, withdrawals, or a surrender of all or part of the policy, or in some instances, a life settlement.
The benefit of building cash value in this policy and the ability to use that cash makes the policy more expensive than term insurance. Also, the premiums typically remain constant throughout the policy, however any changes to the policy (such as borrowing against it) can increase the premium payments.
The other type of permanent insurance is universal life. Universal Life is similar to whole life in that it offers cash value benefits, but this type of life insurance policy offers much more flexibility to the insured. Throughout the duration of the policy, at any time after the initial premium has been paid, you can increase or decrease your premiums, cash value and amount of the death benefit (within the plan limits), as your needs change.
As a recap, outlined below are the advantages of each type of life insurance policy:
• Most affordable type of life insurance policy
• Guaranteed level premiums
Whole Life Insurance
• Permanent insurance that does not expire
• Builds cash value
Universal Life Insurance
• Most flexible of all policies
• Builds cash value
When selecting your type of life insurance policy, consider what is best for you and your family. If affordability is your main concern, a term policy might be your best bet. If your insurance needs remain throughout your lifetime, a permanent insurance policy sounds like a better option.
If you have any questions on the type of life insurance policy that is best for you, please call us at 888-430-7668. Our experienced advisors at RootFin.com are here to help!