Life insurance can seem complicated on the surface, but once you understand the types of policies and how they work at different stages of life, it becomes easier to understand. Everyone needs life insurance, but to choose the right policy for your needs right now – and for the future – you need to know a little about how the different types of insurance policies work.
Term Life Insurance and Who Should Buy It
Term life insurance is the type of policy that is most often marketed as an affordable choice. It’s true that a term policy can be very affordable, and you can get more coverage for your money when you choose this type of policy. For many people, it’s a good choice, and it is certainly the best choice if it is the only way you can afford coverage.
Term life insurance is a policy that has an end date. You can choose a term of various lengths, usually ranging from 5 years up to 30 years. The shorter the term, the more affordable the insurance policy will be because the odds of anything happening to you during that time are lowered. Term life insurance can usually be either extended or converted at the end of the scheduled term date, but it may require a new medical exam, which could change your rates.
For anyone who needs a large amount of coverage for a specified period of time, term life insurance is a good idea. For example, a new parent may take out a term policy for 20 years, the time period during which their child is most dependent on them financially. You can also take out a term policy for the duration of your mortgage to cover that debt if anything happens to you.
Permanent Life Insurance Options
Permanent life insurance policies include universal and whole life insurance, both of which are designed to last for the duration of the policy owner’s life span. Because they are expected to last for so long, they are more expensive than term polices. This is because there is a high – if not definite – likelihood that the policy will eventually have to pay out.
The younger you are when you take out such a policy, the lower the premiums will be, because you have many years over which to pay before it becomes likely the insurance company will have to pay a claim. Those who are taking out a life insurance policy at a young age should seriously consider permanent policies, as they can lock in a low rate for life.
Permanent life is for anyone at any stage of life who wants to ensure that his or her final expenses are covered as well. A smaller permanent life insurance policy will provide for that without being cost prohibitive.
Combining Both Types
There is no reason why you can’t have more than one policy, and for many people a combination of the two main types is the best idea. A permanent life policy with a smaller face value can provide an affordable option to last the duration of your life, while a higher value term policy can ensure that there is a larger benefit available to your loved ones during the time when they need it most.
This combination will ensure that you have the long-term coverage as well as the short-term coverage in a larger amount. By taking out both policies at the same time, you ensure that you aren’t forced to accept a larger premium amount down the road when your term policy comes up for conversion and your age and health status has changed
The younger you are, the better your insurance rates will be. It’s best to lock in those lower rates on a larger policy as soon as you can than to wait and hope you can afford the premiums later in life.
When it comes to choosing a life insurance policy, the more coverage you can get the better, and the sooner you do it the less you will pay. An online calculator can help you to determine how much coverage you actually need, and an insurance professional can help you to figure out how to best get that coverage at an affordable rate. The most important thing to remember about life insurance is that the longer you wait, the more the cost will go up. So the right choice for any stage of life is always to take out the best policy you can right now.