Are you thinking of buying life insurance?
It’s a major decision to make, especially if you have a family to provide for. It can pay for your final expenses and outstanding debts, as well as replace lost income if you die before retirement.
Despite these obvious benefits, only 52% of Americans have some type of life insurance policy in place.
What about you? What are the different types of life insurance you should know about? Most importantly, is buying life insurance the right choice for you and your family?
Keep reading below as we discuss this important topic.
What Are the Different Types of Life Insurance?
Generally speaking, there are two broad categories of life insurance:
- Term life insurance
- Permanent (or whole) life insurance
As the name suggests, you purchase term life insurance for a fixed term or time period. This is typically between 10-30 years. If you pass away during the policy’s term, your family receives the fixed amount.
Whole life insurance remains active as long as you’re alive (and as long as you continue to pay the premiums). Your family receives the fixed benefit amount at the time of your death. Whole life insurance policies also have a cash value that you can borrow against, making it similar to a loan or savings account.
Many companies require you to take a medical exam before they’ll approve you for a policy. You can learn more here about companies that do not require a medical exam for approval.
Pros & Cons of Term Life Insurance
Term life insurance is the most affordable option, offering flexibility to suit many different budgets. The younger (and healthier) you are when you buy the policy, the lower your premiums will be.
Most policies last 10, 20, or 30 years, allowing you to choose the term length depending on your age and family circumstances. Some policies also have the option of converting to permanent insurance at the end of the term, if you wish.
An obvious disadvantage of term life insurance is that if you’re still alive when the policy ends, you and your family receive no cash benefit. (Of course, most would argue that your being alive is the better benefit!)
Pros & Cons of Permanent Life Insurance
Permanent or whole life insurance costs considerably more than term life insurance, but it can offer greater peace of mind. You’ll rest easy knowing your family will receive the cash benefit whether you die tomorrow, next year, or 50 years from now.
If you can afford the higher premiums, whole life insurance also offers an investment component similar to an IRA or a 401(k). You can borrow against the policy’s value for a major purchase, such as buying a home or paying for college.
Of course, if it turns out you don’t need insurance coverage for life, you could end up paying a lot in unnecessary premiums.
Financial Planning: The Right Life Insurance Policy for You
So then, what are the different types of life insurance?
Term and permanent life insurance are the two main types. If you’re still unsure which option is best for you and your family, speak with a financial advisor.
From financial planning to general lifestyle advice, we have it all right here. Keep browsing our blog for other helpful articles like this one.
