What type of life insurance is best for you?
Many of us take life for granted and don’t think that bad things that can happen. Sudden catastrophes only happen to other people, right? Well, the Covid-19 pandemic has changed that perception. The increased risk of death from illness has caused most of us to worry about what will happen to our family if the worst-case-scenario should arise.
Life Insurance is an Important Decision
With over 400,000 sudden deaths from the virus, many people are reassessing their personal finances, including life insurance. There was a time when life insurance was rarely discussed at the dinner table, but today it is a leading conversation in most homes. What is obvious is that many Americans believe that their financial situation is uncertain, and if the bread winner was to die prematurely, the family would be in a dire situation.
One positive impact of the Covid-19 pandemic has been that many Americans now realize that life is unpredictable, and that having some type of life insurance is a good idea. Waiting longer to buy life insurance is not recommended because with advancing age, the risk of developing serious health disorders increases. Because of the increased risk as you age, the premiums will be higher the longer you wait to buy life insurance.
Two Key Factors to Consider When Choosing Life Insurance
If you are interested in buying life insurance, there are two key factors to consider. First, you will want to know what type of life insurance is best for you. Second, you will want to determine how much life insurance coverage you need.
There are three popular types of life insurance policies, each with its unique offerings. Each type of policy will pay a death benefit to your selected beneficiary at the time of your death. However, in recent years some life insurance policies also offer some type of benefit while you are alive.
Three Popular Types of Life Insurance
Many insurance companies will sell you a policy directly, but most of the offers you may see on television or in the mailbox are a one-size fits all solution. It is advisable to consult with an insurance agent when choosing a life insurance policy. An insurance agent will help you choose from various offerings from numerous insurance companies. This will help you make the right choice regarding what type of life insurance you want, and how much coverage you need.
Here is an overview of the three different types of life insurance policies with their pros and cons.
Term life insurance
Term life is a type of life insurance which provides coverage for a specified number of years. For example, the coverage term may be 5, 10, 20, or 25 years). Term life insurance is also the cheapest policy to purchase because the coverage is only for a finite period. Term life coverage does not have a cash value component within the policy This means that if you outlive the policy and the coverage ends, you do not get any cash back.
The Pros: Term life insurance is best recommended for individuals who want life insurance coverage for a specific situation or debt. For example, you may be working full-time and want the policy to be an income replacement for your family if you should pass. In that case, you would only require a length of time equal to the number of years you plan to work. Others may prefer this insurance policy to cover the number of years of a big loan or a large debt, such as a mortgage.
The cons: The one negative financial impact about term life insurance is that you may still need insurance if you outlive the life insurance term policy. If you still require coverage after the first term policy has expired, the new life insurance policy will likely be more expensive, because now you are older and may have developed any number of health problems. Even if you have not developed any health issues, the premiums tend to be higher for people who are older.
Whole Life Insurance
Whole life insurance offers a safe and productive savings plan attached to the policy. This type of life insurance will provide coverage for the entire duration of life, and it guarantees to pay a death benefit if the policy holder has paid all the premiums.
A key feature about whole life insurance is that the policy accumulates cash value over time. By utilizing your premium payments plus interest over time, it can act as a safety net if you should need to access the cash value. The cash value usually occurs over 20 years or more.
Some whole life insurance policies will have the same premium for life but in most cases, the premiums will increase every 12-36 months. If you die, the death benefit will be the same as what you had agreed to in the policy. If you decide to cancel the policy before you die, you will get cash value with interest.
The Pros: Whole life insurance is ideal for individuals who want life-long coverage and agree to pay for the policy guarantees.
The Cons: The one negative aspect about whole life insurance is that it comes with higher premiums that can increase regularly.
Universal Life Insurance
There are several types of universal life insurance policies with different features. The universal theme, however, is that they all provide lifelong coverage. In general, a universal life insurance policy is much cheaper than whole life insurance because it does not offer the same guarantees.
With this type of life insurance policy, some plans are flexible and will allow you to modify the amount of premium payments and readjust the death benefit sum within specified limits.
To keep the death benefit in force the policyholder only needs to pay the premiums and some minor additional expenses. Many universal life insurance policies also have a cash value feature.
The pros: Universal life insurance is ideal for an individual looking for lifelong coverage. Also, there are some subtypes of universal life policies that will allow the cash value. For example, variable and indexed universal life insurance policies allow gains from stock market performance.
The cons: If you want your policy to have cash value, keep in mind that not all universal life insurance policies offer that guarantee. If you opt for flexible premium payments, you have to monitor your policy status online to ensure that the policy fees do not eat up all your cash value. If you leave the policy unmonitored and the cash value is depleted, your policy could lapse. Before you sign on with a universal life policy, you must know beforehand which features are guaranteed and which are not.
Which Type of Life Insurance Will You Choose?
Each of the three types of life insurance has its pros and cons. In general, whole life insurance is ideal for individuals who want a long-term plan, robust guarantees and safety. On the other hand, universal life offers greater flexibility and excellent returns on cash value so long as it is properly executed and managed. Finally, term insurance is the least expensive for those who require a policy for a finite time. It tends to be best suited for the breadwinner who wants to ensure that the family will be provided with an income after death.
All types of insurance policies work well if selected for the right purpose. The best advice is to consult with an insurance professional and determine what type of life insurance is best for you.