The Purchase of a Lifetime
Life insurance is probably the most important insurance policy you’ll purchase over the course of your lifetime. It is an essential part of your financial planning; your policy will literally have to replace your wages. The right policy helps ensure that your loved ones won’t be burdened with debt when you’re no longer there to care for them yourself. But, before you can buy life insurance, you’ll have to decide what kind of life plan will be right for your family. The trick is finding a policy that meets at a cost you can live with.
First Steps for Finding Coverage
Which Type of Life Insurance Is Right For Me? Regardless of alternate titles or new sales presentations, there are only four basic kinds of life insurance plans. Every policy you’ll encounter will contain one or more elements of the four categories below.
Term Life: Your term life insurance would offer you protection for a pre-set term of one year or more. Traditionally sold as terms of 5, 10 or 20 years, your monthly premium will remain level throughout the life of your term policy. You will only be eligible for benefits during that term of years. Some term life policies are renewable for an additional term or more, but your premium will be higher each time you renew. It’s important to remember that even though a term life policy will provide the largest cash benefit for your premium dollar, unlike whole life plans, term policies do not have cash value accounts. Fortunately, there are term life policies available that can be converted (rolled over) into whole life policies. That means that you’d be able to trade-in your term life plan for a whole life or endowment insurance plan before a pre-set conversion period expired.
Whole Life: Your whole life plan would offer you benefits for life. You’d pay the same monthly premium for as long as you lived. Your premium will be larger than it would be for a similar amount of term life protection, but it will be lower than the premium of a renewed term life plan. In general, your whole life plan will combine the framework of a term life plan and an investment component. First, there will be a mortality charge, meaning your actual insurance coverage. Second, there will be a reserve; your reserve is an investment component that will earn interest over time.
Universal Life: Your universal life plan would offer you a variation of the standard whole life plan. There will be an insurance part of your policy that is separate from an investment portion. The investment portion of your universal life plan will be invested in money market accounts and your policy’s cash value portion will be set up into an accumulation fund. Unlike whole life, the cash value of your universal life plan will grow at a variable rate. Ordinarily, there will be a minimum guaranteed interest rate applied to the policy. It won’t matter if your insurance company’s investments go badly, you’ll be guaranteed a minimum return on your plan. If, on the other hand, your insurance company makes good investments, you’ll benefit from an increased return on your plan’s cash value portion.
Cash Value Life: You may have heard this kind of life plan called permanent insurance. It’s designed to provide you with protection for life. Cash value life insurance offers you an assortment of options. Your premiums will be flexible in certain cases and fixed in others. Your benefit may remain level, or it may increase. Your cash value plan will accumulate value over time. In most cases, the premium of your cash value plan will be higher than those of a term life policy.
First Steps for Finding Coverage
- Decide how much coverage your family needs. And don't forget that your family will also have protection in form of plans such as Social Security.
- Decide what you’ll be able to afford to pay.
- Decide exactly which kind of policy suits you. Then, comparison shop to compile a list of plans that match up to your requirements. By comparing the Net Payment and Surrender Cost indexes of each policy that makes it onto your list, you’ll dramatically increase your chances of finding a comprehensive but bargain-price life insurance plan.
Which Type of Life Insurance Is Right For Me? Regardless of alternate titles or new sales presentations, there are only four basic kinds of life insurance plans. Every policy you’ll encounter will contain one or more elements of the four categories below.
Term Life: Your term life insurance would offer you protection for a pre-set term of one year or more. Traditionally sold as terms of 5, 10 or 20 years, your monthly premium will remain level throughout the life of your term policy. You will only be eligible for benefits during that term of years. Some term life policies are renewable for an additional term or more, but your premium will be higher each time you renew. It’s important to remember that even though a term life policy will provide the largest cash benefit for your premium dollar, unlike whole life plans, term policies do not have cash value accounts. Fortunately, there are term life policies available that can be converted (rolled over) into whole life policies. That means that you’d be able to trade-in your term life plan for a whole life or endowment insurance plan before a pre-set conversion period expired.
Whole Life: Your whole life plan would offer you benefits for life. You’d pay the same monthly premium for as long as you lived. Your premium will be larger than it would be for a similar amount of term life protection, but it will be lower than the premium of a renewed term life plan. In general, your whole life plan will combine the framework of a term life plan and an investment component. First, there will be a mortality charge, meaning your actual insurance coverage. Second, there will be a reserve; your reserve is an investment component that will earn interest over time.
Universal Life: Your universal life plan would offer you a variation of the standard whole life plan. There will be an insurance part of your policy that is separate from an investment portion. The investment portion of your universal life plan will be invested in money market accounts and your policy’s cash value portion will be set up into an accumulation fund. Unlike whole life, the cash value of your universal life plan will grow at a variable rate. Ordinarily, there will be a minimum guaranteed interest rate applied to the policy. It won’t matter if your insurance company’s investments go badly, you’ll be guaranteed a minimum return on your plan. If, on the other hand, your insurance company makes good investments, you’ll benefit from an increased return on your plan’s cash value portion.
Cash Value Life: You may have heard this kind of life plan called permanent insurance. It’s designed to provide you with protection for life. Cash value life insurance offers you an assortment of options. Your premiums will be flexible in certain cases and fixed in others. Your benefit may remain level, or it may increase. Your cash value plan will accumulate value over time. In most cases, the premium of your cash value plan will be higher than those of a term life policy.