Life insurance is more affordable than you probably realize. In fact, people normally guess that life insurance coverage will cost three times what it actually will for any given age group. But how can you go about choosing the best life insurance policies when there are so many insurance providers out there, all claiming to offer the best coverage? Here are the two basic types of policies you’re likely to run across when vetting life insurance carriers.
Whole Life Insurance
Whole life insurance is a type of permanent coverage attached to an investment component. Part of your premium goes toward building up a cash value as your insurance company invests it.
Normally, the tax on that cash value is deferred unless you want to borrow against the policy. And if you want to borrow less than you’ve paid in your premiums (called the “basis” of your policy), you can probably do so tax free.
The advantage of this coverage is that it’s permanent — meaning the death benefit will be paid no matter when the policy owner passes away. The premiums also normally stay the same throughout your entire life, instead of getting higher as you age.
Term Life Insurance
Term life insurance is limited to a specific time period (“term”) and has no investment component. This is a common type of policy that protects the beneficiaries (typically a spouse or children) of the policy in case of your death.
Policies have a face value that they will pay out upon death, and they do not build any value over time. As long as you pay your monthly or annual premium, the coverage remains in place up to the end of the policy’s term. A common term is a maximum of 30 years.
The advantage of term life policies is that premiums are typically significantly lower than they might be for whole life insurance. They are also initially worth more, providing additional protection in the early years of the policy’s term. However, premiums tend to rise sharply as you (if you’re the insured) age.
Do you have any additional tips to share on getting the best life insurance policies for you and your family members? Join the discussion in the comments.