Choosing life insurance, especially in the early stages of life, can be daunting. Several factors need to be considered to choose life insurance that
Choosing life insurance, especially in the early stages of life, can be daunting. Several factors need to be considered to choose life insurance that best suits your needs. Before talking about how to choose life insurance, it is important to know what life insurance is. Life insurance is when a life insurer promises to pay a fixed sum of money to the life insurance policyholder’s beneficiary in the event of the life insured’s death. In return, premiums are paid by the life insured or by a third party such as an employer or other group.
When looking to choose life insurance, there are three possible options: term life insurance, whole life insurance, and universal life insurance.
1. Term Life Insurance
Term life insurance is life insurance that covers you for a limited period or term. It is usually much cheaper than other forms of life insurance because the payout only occurs if you die within the covered term. Term life policies are also significantly cheaper than whole life policies, but generally less beneficial. For instance, most term life policies do not accumulate cash value, whereas whole life policies do. Term life is often recommended as temporary life insurance for young families, due to its low monthly cost and coverage every year. This way, if you can afford more life insurance later in life, you can upgrade to a longer-term policy without having to go through medical tests again.
2. Whole Life Insurance
Whole life insurance is life insurance that covers you for life. The premiums remain to level, but the payout increases as you age due to increased life expectancy. This makes it much more expensive than term life insurance in the early years, but less expensive over a lifetime due to decreasing premium costs as you age and life expectancy increases. Often called cash-value life insurance, whole life insurance provides a savings component that builds cash value over time. This can allow you to borrow against the life insurance policy in certain circumstances. Other benefits of whole life insurance include guaranteed insurability and permanent life coverage. The last benefit is what differentiates it from term life insurance; if a life insurance policyholder becomes ill, their life insurance company cannot decline their life insurance if their condition improves. Although whole life insurance is more expensive at the beginning, you will make up the costs with time if your life expectancy increases.
3. Universal Life Insurance
Universal life insurance is a type of permanent life insurance that combines the benefits of both term life and whole life policies. It is life insurance that covers you for life and includes a savings component like whole life. The only difference between universal life and whole life is that the former has more flexibility with premiums paid. You can pay every month or yearly, depending on your preference.
To choose life insurance, there are several factors to take into consideration. If you are young, term life insurance is probably the best life insurance option. If you are older, then your whole life or universal life might be right for you. If your life is complicated with a lot of changes in life, such as frequent relocations, or if you have any pre-existing conditions, whole life might be the best choice to ensure life insurance is always available. Finally, universal life insurance might be the best life insurance to choose if you are looking for life insurance that provides flexibility with premiums paid and cash value.
