Life insurance is rarely a favorite topic of conversation, and understandably so since it forces you to confront your own mortality and contemplate what your spouse, children, or another dependent would do without you. Still, it’s imperative that you consider life insurance companies and the types of policies that can work for you, so your dependents can be protected if the unthinkable should happen.
One issue many people might have with taking out a life insurance policy, especially if they’re young, is affordability. Unfortunately, life insurance only gets more expensive as you age and develop health problems, so it’s best to go after it early. Most traditional life insurance companies will require you to take a medical exam as part of the underwriting process in order to classify you.
If you’re struggling to determine how much life insurance you need or what kind of coverage makes the most sense for your needs, it may be a good idea to speak with a financial advisor. Once you think you’re on the right track, there are some excellent resources to find life insurance quotes online. Think about the types of life insurance and how much you can afford at the moment. Here’s a quick guide to get you started.
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Term Life Insurance
Term life plans generally offer the cheapest premiums compared to other plans, so they’re a good way to start out if you can’t afford higher coverage amounts. They’re also a good option when you only need to guarantee a death benefit for your beneficiaries while reaching a set financial goal, such as putting your children through college. As the name implies, term life insurance is only good for an agreed-upon amount of time, and then the policy will lapse if it isn’t renewed.
You’ll need to think carefully when a term is about to run out since if you die while the policy has lapsed, your beneficiaries will receive nothing. Term life policies are generally good for a period of 10-30 years, but you may be able to find a policy that lets you renew on a yearly basis, in exchange for a higher premium. You’ll usually also have the option to convert the plan to a permanent policy when the term ends.
Permanent Life Insurance
These are policies that will last for your entire life. There are a few different types of permanent life insurance, and each one offers benefits in addition to the death benefit.
Whole Life Insurance: A whole life policy also comes with a savings component, where the policy can accrue cash value through dividends. You’ll also have the option to build cash value faster by paying your monthly premiums in advance.
Universal Life Insurance: This policy type combines the positives of whole life and term life by offering a savings element coupled with lower premiums compared to other permanent options. Policyholders will have access to the cash value of the policy for as long as they’re alive, but upon their death, beneficiaries will only receive the death benefit.
Variable Life Insurance: These policies have an investing component through subaccounts that operate like mutual funds. These plans offer the highest potential for growth through these investments, but it’s important to remember that market shifts make this the riskiest policy type as well.
Those with permanent policies can borrow against their cash value when needed, although it will need to be paid back with interest, similar to a loan. Some policies even allow you to make withdrawals from the cash value, but great care should be exercised in doing so. Excessive borrowing and withdrawals can eat into the death benefit, meaning that you’ll be leaving less money behind.