There are dozens of life insurance products on the market. But at the end of the day it all comes down to two types of products: permanent life insurance and term life insurance. Let’s discuss them in detail.
Term life Insurance
Term life insurance is a product that has an expiration date. Its coverage that lasts for a specific amount of time usually between 10 to 40 years to either take care of temporary financial responsibilities or provide affordable coverage while your situation gets better. It doesn’t provide any cash value accumulation or investment aspect. It’s what’s called pure protection life insurance. Much like car insurance, its coverage we hope we don’t have to use but it’s there if we need it. Once the term you choose expires, it’s time to either renew the term or convert the coverage. Besides being the most affordable option it’s also highly customizable with multiple riders to choose from.
Here’s a brief description of the most popular options and riders:
Option to convert – this option allows you to convert the term life insurance to a permanent life insurance that will provide you with coverage that doesn’t expire. It’s important that you have this option when you buy term life insurance because it allows you to convert the term policy without proof of insurability, but at the attained age of conversion.
Return of premium– a more expensive term product but popular nonetheless. This term life insurance rider allows you to receive every premium you paid out back once the term expires. Most companies require that the policy stays in force to the end of the term to receive the money back.
Child rider– Exactly what it sounds like, this lets you insure multiple children for one extra charge on top of the premium to your policy. Usually with a cap of up to $50,000 per child, it’s a great option if you have more than one kid because you pay the same amount for any number of kids.
So as you can see term life insurance does have its ups and downs, let’s discuss permanent life insurance before we get into which type of policy is best for you.
Permanent life insurance
Unlike term life insurance, any permanent life insurance policy will provide you coverage for your entire life. It’s not if you die coverage, it’s when you die coverage. There is a big misconception that Whole Life is the only type of permanent life insurance product. While it can be great coverage, especially for those looking for cash value accumulation, it’s not the most affordable option for permanent life insurance. If you are looking for pure death protection then a Guaranteed Universal Life Insurance policy is your best bet. We’re going to discuss pure protection Guaranteed Universal Life, if you would like to learn more about whole life read more here.
Guaranteed Universal Life
Guaranteed universal life insurance is a product designed for those looking for more affordable permanent life insurance options with less focus on cash value accumulation. While this product may have cash value accumulation it’s limited and usually just used to keep the premiums level throughout the length of the policy. It provides coverage from age 90 to age 121 depending on the product the company offers.
What type of Life Insurance Should I Buy?
The type of life insurance you need depends on your budget, your financial responsibilities, and what your goals are with acquiring life insurance coverage.
This is usually a good place to start because it will make it evident which type of life insurance you are actually able to get. Term life insurance is much more affordable than permanent life insurance simply because it’s a less likely possibility that the life insurance company will have to pay out the claim. That’s why the premiums for term life are much less expensive.
A healthy 43 year old male, non-smoker, can acquire a $500,000 20 year convertible term life policy for 58$ a month.
That same male would acquire a $500,000 Guaranteed Universal life policy at $307 a month.
If you have a limited budget I recommend getting a term life insurance policy to make sure that you have some coverage in place that you can afford comfortably and have the peace of mind knowing you have it just in case. As your situation gets better through promotions, better jobs or business growth, you can always opt for more coverage or convert to a permanent term GUL policy. Some life insurance is always better than none at all, just ask your family.
Your financial responsibilities
Now if you know you can afford your life insurance premiums consistently and make sure the policy doesn’t lapse than you have to consider your financial responsibilities. Life insurance is there to insure the chance that you may die unexpectedly. It’s always a good idea to buy a policy that would cover you in the case that you die tomorrow, but you also have to consider that some financial responsibilities are permanent.
So if money is not an issue I recommend securing a permanent term policy now for all your permanent needs. Things like hospital bills, funeral expenses, and any legacy you want to leave behind. Now for all your temporary expenses like mortgages, you can secure a term policy for the length of time you think you would need it. This way you lock in a low rate for permanent life insurance, and you can have an affordable coverage to make sure you have adequate coverage in the case of an unexpected death. Remember you can also convert the term policy and lower the amount coverage (which lowers the premium) at any time without proof of insurability.
If you can secure a permanent coverage for your permanent needs and a term policy for your temporary needs that is your best option. This is also best discussed with your agent so you can get the proper amount of coverage by doing a full needs analysis.
If on the other hand you need coverage but can’t afford to do both, get more term coverage so that eventually you can convert it to a permanent policy and adjust the coverage accordingly to your needs at that time. Make sure you get an amount you can afford comfortably every month to keep the policy in force.