What Kind of Life Insurance Policy Should I Get?
Life insurance – You are already established. She and her partner have left apartment life behind and bought their first home. You both have a career, but maybe one of you wants to stay home now that there’s a baby in the house. Your old compact car couldn’t fit a proper child seat, so there’s a new, safer SUV in your garage.
These are a lot of new expenses – a mortgage, a car payment, saving for a college education. Suddenly, the idea of life insurance seems to be more important. What would happen if you or your spouse died?
The purpose of life insurance is to replace your salary and earning potential if you die, so your family is safe. It may seem complicated, but understanding the different types of life insurance and how they work will help you decide which one is best for you and your family.
What is life insurance exactly?
To put it simply: You work with a life insurance agent to choose a policy and then make payments (called “premiums”) to the insurance company over time. If you die while the policy is in force, the insurance company pays a sum of money (called a “death benefit”) to your beneficiary.
The amount of the premium mainly depends on three things:
- The type of life insurance you buy
- The amount of insurance you need
- your current health
There are many types of life insurance, but they are generally divide into two main groups called term policies and permanent policies.
Term life insurance
This type of life insurance is good for a certain period of time. Renewable annual term policies insure you for one year at a time and renew each year. Level premium term policies cover a person for a period of years – typically 20 or 30, although shorter increments are also available – and are intend to provide coverage during a person’s most productive years.
Permanent life insurance
This type of life insurance provides coverage for a person’s entire life if payments are keep up to date. Below are some of the common types of permanent insurance. The descriptions apply to most policies, but always check with your insurance provider to see how your particular policy works.
- In whole life insurance policies, your payments are fix and your account has a monetary value that grows over time, like a savings account. Variable life insurance policies allow you to put your accumulate monetary value into an investment account manage by the insurance company and any earnings are add to the value of your account.
- Universal life insurance policies are a bit more flexible than whole life insurance policies; You are allow to skip some payments, but you must pay at least a certain amount each year.
- Variable universal life insurance policies are a combination of the latter two. But are more complicated and generally not as popular.
- Survivorship insurance policies insure both spouses and are paid when the second person dies.
The main differences between these types of life insurance are the length of the policies and the cost of the payments.
How to choose between these types of life insurance?
The first step in choosing a life insurance policy is to figure out what you’re trying to protect. Are you trying to replace your income when you pass away? Do you have outstanding debts (such as a mortgage, car payment, etc.) that need to be paid? Are you looking to cover the cost of your funeral? Talk to your loved ones to help you answer these questions.
Next, carefully study the insurance provider and the benefits of the policy. The benefits vary with each company and the same policy could be cheaper with another provider, but have fewer benefits. Choosing the right one among the types of life insurance should be like buying a car: talk to several companies and compare the benefits of each policy as often as you can.
Lastly, choose a policy that is affordable and works well for your budget. Most people pay their premiums over many years, so it’s important to choose a policy that you can afford now and in the future.