So you have made the decision that you want to buy life insurance, but you are unsure of what policy to pick and how much you should be spending. First, you have made the right decision by getting this insurance. If a disaster were to strike, you would at least know that your family would be taken care of by the coverage that you have. Here are some of the different types of life insurance policies to help you determine what to choose.
Term insurance is the most common and affordable life insurance policy offered in the country. They last for a given term, before expiring and needing renewal. If you were to die before this term expires, you will be granted a set amount of money known as a death benefit to your family. Payments that you are making during this insurance term will go towards your death benefit. You can read more about term life insurance here to understand how the policy works and how you can get the most out of it. While term insurance for the most part is affordable, it does come with its downsides.
When you are young, term insurance is extremely cheap. This is because the insurance company is not expecting anything to happen to you during this time period. When your first term expires however and you are now in your fifties or sixties, you can expect the cost of your next policy to be much more expensive. As you are getting older, the company takes greater risk of having you. Therefore, your policy will reflect that. The best advice for term insurance is to get an extremely long policy ~25 years, at a young age. This guarantees that you will be getting a good length of coverage for a lower price.
Whole Life Insurance
Whole life insurance is different from term insurance in the fact that it does not expire and there is no term. You get the same death benefit, however there is also cash value that is tax free within the policy itself. When paying for whole life insurance, a portion of the premium will be going into the cash value of the policy which helps pay for the benefit, while the other half is invested into the savings account.
While these policies can pay off large amounts of money, they are often five to fifteen times more expensive than a term policy. Therefore, these policies are often saved for the rich and those who are wealthy. The benefits are there for whole life insurance if you can afford it, but ask yourself if you can afford to spend that much money and if it is necessary.
Universal Life Insurance
Universal life insurance is very similar to whole life insurance. Everything is guaranteed and you are paying your premium for the rest of your life while a portion of it goes into an account. The difference however is that at any point you can adjust the premium and death benefit amounts without having to opt-out of your policy and get a new one. What this means is that you can use some of your investment money in the policy to help pay the premium if you ever need to.
As the money in your universal life insurance policy is affected by the current market interest rate, you want to make decisions that are smart with that money. This is why you might want to pay with some of that investment money, as it can make sense financially at the time. The flexibility of this insurance is fantastic, but it can be confusing for some and with constantly changing interest rates and payments, people tend to avoid it.
Simplified Issue Life Insurance
With any life insurance, you are normally subject to a medical exam where the insurance company is able to see the results and then offer you a premium based on them. With simplified insurance however, you can do away with the exam. While you will not be examined, you will be required to answer questions however about your health. This can be things pertaining to recent health issues, smoking, etc.
People can be denied based on the results of their questionnaire, and your whole contract can be voided if it was determined that you lied during the process. The problem with this insurance however is that it is often much more expensive than standard insurance as the companies do not have enough information on you to make an accurate policy. Therefore they overestimate to cover their losses.
Why would you choose this then? The medical exam and pending results can take an extremely long time to come in. If you need insurance quickly, this is the way to get it done. Another reason would be if you are uncomfortable with the examination process. Regardless, if you are a healthy person, you should be going in for an examination to prove so as it can save you money.
Final Expense Insurance
Final expense insurance is unique in the fact that it does not give much death benefit payout, however it does cover your “final expenses”. If you have this policy, you would not have to worry about final medical costs, a funeral, or cremation if that is what you are choosing. This insurance is typically chosen by the elderly who have survived their term policy, cannot get a new one, and cannot afford to pay for their funeral.
The drawbacks to this are the same as simplified life insurance. The premiums are much higher and there will be a much larger cost associated with everything. This insurance is typically only recommended if you and your family are not going to be able to pay for the funeral. If you are able to do so, it is advised that you forego this policy.
These are all life insurance policies that you should consider when trying to decide what is right for you. Take some time to think about it all and analyze your health, job, and lifestyle. All of these things will play a role in what type of insurance you think that you need. Try to get a medical examination as well, as it will help save money in the end.