Choosing the Right Life Insurance Policy

October 12, 2018

There comes a time in all of our lives when we realize that we’re getting older, we have people who depend on us, and we have assets that need protection from life’s many curve balls.

One very important consideration to make is choosing the right life insurance policy for your needs. It can be daunting to navigate the confusing waters of these policies, but with a bit of education, you can feel comfortable deciding which terms and choices work for you and your family

The Cost of Life Insurance

The cost of a life insurance policy can vary according to your age, health, hobbies, occupation, and coverage amount. As a smart consumer, you’ll want to collect several life insurance quotes before you make your decision. The Internet makes the process quick and easy.

You’ll need to answer a few questions about your age and habits, along with how much money coverage you want, and life insurance companies will contact you either through email or over the phone with various quotes. You can also likely get basic life insurance through your work, and many employers will offer you the chance to expand your company’s life insurance options.

Choosing a Life Insurance Policy

Whole Life Insurance

Whole life insurance, also known as permanent insurance, combines investment with insurance and will cover you as long as you pay your premiums. These insurance premiums will never increase over the life of your policy, and your benefits will never decrease.

In whole life insurance, part of every premium you pay goes into a tax-free investment fund that acquires cash value and can be borrowed against or listed as an asset when you apply for a loan. The exact percentage of your whole life insurance premiums that go toward this investment fund depends on your specific life insurance policy.

If you’re not one to take financial risks, however, a traditional whole life insurance policy may be more appropriate for you. Traditional whole life insurance guarantees a minimum cash investment value from your regular monthly premiums. Like other forms of whole life insurance, these premiums build cash value over time, and if you lose your job or are unable to make your payments, you can use the money from your investment to pay your premiums.

Term Life Insurance

A term life insurance policy can be both cheaper and more flexible than whole life insurance. If you decide on a term life insurance policy, that policy’s amount and policy length are entirely up to you. When trying to decide on your policy amount, a safe rule of thumb is to have 6-10 times your annual household income. Unlike a whole life insurance policy, all money paid on a term life policy goes toward the insurance and none to investments.

Among the many timelines available with a term life insurance policy, the most popular plans are annual, 7- and 10-year policies. The premiums for an annual term life insurance policy increase a little bit each year. Premiums for 7- and 10-year plans increase each time their cycles end, and though they remain the same for a longer period of time than an annual, their rate of increase will be higher than the annual policy. You can also take out a term life insurance policy for as long as 30 years if you’re willing to pay a higher premium.

Variable Life Insurance

Variable life insurance is similar to whole life insurance as it also combines insurance with investment by allocating a percentage of your premiums to tax-free mutual funds. The difference with variable life insurance is that you get to choose how your money is invested. Given the percentage of your premium that goes toward investing, you decide whether you want to invest in equity, money market, bond funds, or any other options included in your life insurance company’s investment portfolio.

Premiums for variable life insurance remain the same over the life of your policy, but death benefits can fluctuate with the market. Some life insurance companies will guarantee a minimum death benefit, though this is becoming more rare and expensive. With a variable life insurance policy, you also cannot withdraw money from that policy during your lifetime.