What Type Of Life Insurance Should I Get?
We know that life insurance is an important purchase for adults
. It can also be beneficial for children. However, deciding what kind of life insurance to buy is challenging. There are many different types of policies available. We should understand the advantages of each type so that we can make the best choice for our families.Term insurance
A term policy will only provide a death benefit for a specific number of years. Most policy terms range from 5 years to 30 years. Since these policies do not last a lifetime, they are often much less expensive than comparable permanent policies. However, if the insured does not die during the term covered, there will be no payout of a death benefit and usually no return of premium payments.
Many of these policies will lock in the premium payment amount for the duration of the policy. This ensures that we know how much our premium payment is at each due date. Premium payments may be paid monthly, quarterly, biannually, or annually.
Term policies can be renewed at the end of the term, but the premium payment will be reevaluated and reset based on the insured's new age. It is very possible to expect a large increase in the payment.
Permanent insurance
A permanent policy will provide a death benefit for the lifetime of the insured - as long as the policy does not lapse. Since permanent insurance has the potential to last much longer than a term policy, it is more expensive.
The premium payments for permanent insurance are fixed at the time the policy is purchased. As the insured ages, the premium payments will not increase.
One feature that makes a permanent policy different from its term counterpart is that there is a cash value feature. As premiums are paid, a portion is used to pay the cost of insurance. The remainder is deposited into a cash account. The funds will earn interest and build over time. The policy owner can withdraw or borrow from this account.
Purchase based on the need
The best way to determine the type of insurance to purchase is to buy based on the need. Use term insurance to cover needs that have a shorter life span. Use permanent insurance to cover needs that are not expected to go away.
For example, we don't plan to work forever. Our children will leave home at some point, and we will no longer have to financially provide for them. So, the need to replace our income and support our children is best covered with term insurance.
Another example is covering a mortgage. If the policy is being purchased to pay off a 30-year mortgage in the event of an untimely death, the policy should be a 30-year term.
However, final expenses and gifts to family or charity don't have end dates during our lifetimes. These needs can be covered with a permanent policy.
If we carefully analyze the reasons for purchasing our life insurance, we have a better chance of being fully covered at a more reasonable cost.
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