There are two types of life insurance -- term and permanent. The one that's right for you depends on many factors, including your budget, the amount of coverage you need, and the length of time you'd like the coverage to last.
Term insurance is a lower cost option that allows you to purchase the most coverage for a limited span of time — long enough to meet your anticipated responsibilities to those who depend on you, but no longer. Permanent insurance is designed to provide lifetime coverage. But, don't think that you're limited to one or the other. Many people find that a combination of term and permanent life insurance best meets their needs.
Term Life Insurance
- Provides coverage for a specified period of time. Annual renewable term has premiums that increase each year. Level term products offer a guaranteed premium for 10, 20 or 30 years. In either case once the guarantee period ends the premium can become very expensive.
- Term is an easy to understand product that does not build a cash value. The low premiums, especially at younger ages, allow you to get the most protection at the lowest cost.
- It is important to compare prices when purchasing term coverage, but also look at the policy provisions. The conversion option may become very important if you need permanent coverage later in life and due to a change in health you are rated or uninsurable.
Permanent Life Insurance
- Provides protection for your whole life, as long as sufficient premiums are paid.
- Depending on the kind of contract you can build equity in the form of cash value
- Complex product that can be hard to understand
- Initially has a higher premium requirement than Term, but can be more cost-effective in the long run
Types of permanent insurance include --
Universal life insurance provides lifetime death benefit protection along with flexibility if your needs or finances change. It offers options such as coverage amounts that may be increased or decreased, and premiums that you can vary as long as there is enough money in the account to pay for the monthly insurance and administrative charges. Universal life include -- Current Assumption and No Lapse Guarantee policies.
Whole life insurance provides protection for a lifetime as long as the policy is in force. It offers guarantees that you can’t find in other forms of life insurance, including guaranteed premiums that will not increase, a guaranteed death benefit and guaranteed cash value growth.
Survivorship (second-to-die) life insurance insures two people and pays the death benefit when both have died. It is used primarily for wealth preservation. The cost for this policy is usually lower than the cost of two individual policies.
Product Features & Riders
When evaluating any life insurance product it's important to look at product features and riders as well as cost. Some items to consider include --
- Term conversion options
- Policy changes (cost of insurance, sales loads, policy fees, loans)
- Projected cash value (guaranteed and current)
- Riders - Waiver of premium, Long Term Care, Accelerated Death Benefit