Different Types of Life Insurance — Which is Best for You
Because there are several types to choose from, picking the right type of life insurance for your needs can be challenging. However, there are some key differences in the types of insurance that would make some more useful for some situations than others.
Young People
Although most people don’t think about dying too much when they are young, accidents and illnesses do happen even to people in otherwise great health and under 40. However, this group is also least likely to be in the position to afford the high fees associated with permanent insurance policies. For them term life policies with an option to convert to a whole life policy later is one of the better choices. Because the premiums are lower, you can take out a decent amount of coverage — more than you might be able to afford with another type of life insurance.
Families with Young Children
Typically, you’ll want a larger amount of coverage if you have young children because if something would happen to you the other parent would be left with a lot more bills and financial challenges. Generally, a mortgage is still owed, there may be a primary or secondary income lost, medical bills may be quite high. Money is also usually tight in families with younger children, too. In these cases, term life insurance is also the best choice. You can afford a larger coverage amount for less which means you can provide well for your spouse and children.
Young with Family History of Chronic Disease
With most healthy young people, term life is a good choice. That’s not the case if you have a family history of chronic health problems, such as cardiovascular disease, cancer, or diabetes. Because these illnesses can cause you to pay huge premiums or to be denied for coverage completely, you don’t want to wait until you develop them to get the life insurance you need. In these situations, choose one of the permanent life policy options. If you have the money and want something simple, choose the whole life policy. If you need more flexibility with your premium amount, choose universal. By establishing permanent insurance while you are still young and healthy, you’ll lock in reasonable premiums and guarantee yourself coverage as long as the premiums are paid.
Over 40 in Good Health
Once you reach 40, term life insurance is rarely the best option because the premiums are going to be higher and the terms will be shorter. Instead, you should go ahead and choose a permanent life insurance product. Now is also a good time to purchase a permanent policy because most term policies will not renew for individuals over 65 or 70. Opting for a policy now while you’re still in good health can help you pay lower premiums while also building the cash value of your policy.
Over 40 in Poor Health
Unfortunately, if you’ve waited this long to get life insurance and your health is not great, you might face some challenges finding affordable coverage. You may not qualify for term life insurance because you would be considered a high risk candidate so your only options might be permanent policies. Consider the universal policy and see if that might at least help you keep your premiums lower.
Wanting to Leave an Inheritance
Today, many people want to leave something for their families beyond the medical and funeral expenses. They want to leave behind a significant amount of cash that their children and/or grandchildren can use for college or other benefits. For these individuals, the two best choices are term or variable. Term works because you can spend less and buy a larger amount of coverage, although if you outlive the term and can’t afford to renew then you might lose everything you’d hoped to give your family.
Variable is a type of permanent insurance in which the amount of your payment above the required premium is invested into vehicles of your choosing, such as stocks, bonds, and other investments. Whatever your money earns in these investments is added back into the policy and under many such policies is paid to beneficiaries in addition to the face value of the life insurance policy. Normally, the return of these investments is higher than what you’ll find with whole life insurance.
Professional Getting Insurance for First Time
If you’re in your late 20’s or early 30’s and you are a business professional, the best life insurance choice for you is probably going to be whole life. You’re still young enough to be approved for the policy with little difficulty but you’re also probably at a place financially where you can afford the higher premiums. Chances are you also find the cash value aspect of the policy appealing and like the idea of having a flat premium for the life of the policy which will be useful after retirement when your income decreases. Plus, you’ll have coverage in the event something would happen to you.
Smokers who Recently Quit
Smoking is the best way to increase your premiums or your chances of being denied coverage. Even if you’ve quit smoking, most insurance companies won’t reduce your premiums for several years. The best choice in these cases is to purchase a lower cost term life policy then switch over to a whole life policy after you’ve been a non-smoker for several years.
March 16, 2009, Posted by Rainy Day Mitch