Even though most people do understand the need for life insurance, many still hesitate. Life insurance policies are long term contracts, and consumers are reluctant to enter into them because they are not sure which type of coverage would be the best for them.
You can barely drive down the street, turn on the TV, or browse the internet without seeing ads for different life insurance companies. But most of these advertisements seem to promote one specific type of coverage from one insurer. Consumers know that they can buy different types of coverage, but they have justifiable concerns that answering one of these ads will not provide them with a real answer to their most basic questions. People want to be able to figure out which type of life insurance is best for their own unique situation.
So what is the best type of life insurance? First, look at the basic types of policies you can buy:
- Whole Life – Sometimes this is called traditional or straight life. These are permanent policies, which mean that they will cover an insured person for as long as the policy is kept in force. Keeping a policy in force usually means that the premiums are paid. Whole life policies can also build up a cash value, and that cash value can earn returns. So some people consider whole life a combination of savings and insurance.
- Term Life – Temporary, or term, polices are probably the most popular plans on the market. They only offer temporary insurance coverage, and not an opportunity to build cash value. They also only assume a temporary risk, even though the term may be for a few decades. But for these reasons, premiums will be lower than for permanent policies for the same amount of coverage.
- Universal Life – People are are very interested in combining their insurance with a tax deferred wealth building account, look at universal life. Like whole life, universal life, is permanent coverage. The insurance part, and the savings part, of the contract are split out to be more transparent to the policy owner. The cash value in the account can grow at a set interest rate, or by being tied to a common market index. In addition, monthly payments, and even the coverage amount, are flexible and can be changed over the life of the policy as a covered person’s needs and budget changes.
Again, which type of coverage is best? That really depends upon your own unique needs and expectations.
- Whole life provides a simple, permanent plan with a fixed premium. Many smaller face value whole life policies are marketed to older people, like senior citizens, as an affordable way to plan for final expenses like funerals.
- An individual may be able to afford a larger term life policy because premiums are cheaper. They may only need that large amount of coverage while their kids are young and home mortgage is large.
- Universal life insurance can provide a flexible way to have coverage and retirement savings in one account.
If you have understood the differences and types of life insurance, go ahead and collect y
