In our last post, we discussed how Americans are more vulnerable than ever when it comes to protecting themselves and their families with life insurance. Today, we’ll dive more into the types of life insurance available and the critical factors you should consider when it comes to selecting the right policy.
Types of Life Insurance
There are two primary types of life insurance available – term and permanent.
Term is the simplest form of life insurance. It pays only upon death during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions.
Whole life offers more benefits, ownership and control than term. Up until the early 1980’s, whole life was the only kind of permanent life insurance available. However, insurance companies introduced other permanent policies, including universal life, variable life, and variable universal life.
Like term, permanent insurance pays a death benefit. Where it differs from term is that a portion of the monthly cost (the “premium”) goes into an investment account that builds cash value over time. As such, permanent life insurance is often used in retirement planning.
In general, think of term insurance like renting and permanent insurance like buying. For highlights of each policy type, see the table below.
Deciding The Right Fit
So how do you decide what’s right for you and your family? What type of policy is the right one? And how much insurance do you need? In general, the answers revolve around a few primary factors in your life:
Your age is one of the primary drivers of the insurance’s cost. Generally, the younger and healthier you are, the better your chances of getting a better rating and paying less. If you’re buying term, your age may dictate the length of the policy as well. In other words, at what age will you no longer need the coverage?
Providing for loved ones in dire times is why many people buy life insurance. For married people, especially those with kids, life insurance coverage can deliver vital financial protection when it’s needed most.
A good rule of thumb is to evaluate life insurance needs each time there is a major family change – job moves, new house, children, and so on.
Income, Future Expenses
One of the main reasons to buy life insurance is replacing lost income. How much income would you need to replace for daily living expenses if the unthinkable happened? Similarly, what about big costs down the road, like college?
For many people, life insurance benefits provide for loved ones’ current costs, as well as future expenses like children’s college costs.
When people pass on, their debt does as well, often to unsuspecting (and unprepared) family. When considering life insurance, factor any debts owed in the benefit amount.
Where to Buy?
So, you know the basics of life insurance policies and how to decide what’s right for your family, but one question remains – where do you go to buy life insurance? That’s what we’ll cover in our next post in this life insurance series.
Securities sold through CoreCap Investments, Inc., a registered broker-dealer and member FINRA/SIPC; advisory services offered by CoreCap Advisors, Inc., a registered investment advisor. Cornerstone Financial and CoreCap are separate and unaffiliated entities.