The basis of signing up for life insurance is to provide your policy’s beneficiaries (typically your spouse or children) a sum of money in an event you pass away. This is called the death benefit.
Choosing a life insurance policy can be very overwhelming, especially if it’s your first time looking for coverage.
In this article, we’ll be taking a look at how to look for a suitable life insurance policy for you based on some key considerations.
Finding the Right Provider
Before we discuss the types of life insurance policies out there, keep in mind that there are hundreds of life insurance providers out there. In 2018, there were more than 700 life insurance companies in the USA.
If you want an unbiased list of choices on the best life insurance policies for your needs, take a look at an insurance policy comparison site. The team at PolicyScout note this is a great way to carefully narrow down your options and look at existing customer reviews before making a decision.
Once you’ve found something you like, you can proceed to get in touch with the desired insurer.
Choosing the Policy for You
There are many types of life insurance policies out there, but for this brief article, we’ll take a look at the two most popular life insurance policies on the market: term and whole life insurance.
Term Life Insurance (TLI)
TLI is the most straight-forward policy you can get and by far the most popular. Every month, you will be paying a low premium for as long as the duration of the insurance policy.
If your policy duration is 30 years and you pass away before the policy expires, your beneficiary(s) receive the death benefit. If you don’t, you won’t get refunded and should renew your policy, convert it to whole life insurance, or look at other options. TLI is usually very affordable.
Consider TLI if:
- Affordability is important
A 30-year-old male would only spend an average of $368 annually for a 30-year TLI policy for coverage of $500,000. However, if you sign up for a TLI at a later age, it will cost more as you bear more risk to the insurer.
- All you care about is coverage
Unlike whole life insurance, a TLI doesn’t build up a cash value. You only get what you expect out of life insurance.
- You plan to convert to whole life insurance in the future
When your current policy almost expires, most insurers allow you to convert your policy into a whole life policy.
Whole Life Insurance (WLI)
With WLI, you don’t have to worry about your policy expiring because it will last until the day you die, provided you pay your premiums. What makes WLI slightly complicated is that your policy will store and grow cash value.
Think of this cash value as a mini investment account in your portfolio that grows annually. You can then borrow this money with low-interest. Your premiums will be more expensive as some of this money goes to building up your cash value. WLI can cost as much as 15 times that of TLI for the same coverage.
Consider WLI if:
- Want a fixed-price premium throughout your life
TLI is more expensive to renew the older you get. For WLI, the premiums you pay at 30 are usually the same as what you pay at 60.
- Want a guaranteed return on your investment
Your cash value will keep on growing despite bad market conditions as most WLI policies guarantee a minimum return.
- You plan on taking a loan at low rates
You can borrow money against your insurance policy at an interest rate lower than what banks would give.