It’s likely you’ve insured the major investments in your life, such as your home and personal belongings. So it makes sense to consider protecting the most important of all: your family. Life insurance is there to help your loved ones deal with future financial costs, such as college tuition, estate taxes and house payments, and can provide additional income during your retirement years.
Term Life Insurance
Term life is often used as a safety net for families to replace lost potential income and to help ensure they can meet their financial needs, such as mortgage payments, business expenses and college tuition. It's the most straightforward and affordable form of life insurance, insuring you for a specified period of time. If you die during that time, your beneficiary receives the value of the policy.
Here's an overview of term life insurance:
- Insures you for a set time frame, anywhere from 10 to 30 years
- Guaranteed premium for term of policy
- Can be converted to a permanent product
Whole Life Insurance
Whole life insurance is often used for estate planning, to help protect your wealth as it's transferred to your family or other beneficiaries. Unlike term life, whole life insurance is designed to provide coverage for your lifetime. As a permanent life policy, it typically has higher premiums than term life, but they don't increase as you grow older.
Whole life insurance offers you:
- Ability to build cash value that grows over time on a tax-deferred basis
- Access to cash value when you need it
- Potential to earn dividends
Universal Life Insurance
Most people use universal life insurance as an estate planning strategy or as a way to provide for a family's sudden loss of income. Like whole life, it's designed for lifetime coverage. However, universal life lets you change your premium or coverage amounts throughout your lifetime. The cash value of a universal life policy is also tax-deferred, so you can build wealth over time.
Universal life insurance offers you:
- Flexibility to raise or lower your death benefit and premium
- Cash value that grows over time on a tax-deferred basis
- Access to cash value during the insured's lifetime
- Potential to earn dividends
Compare the Types of Life Insurance
It's important to understand the differences between the three basic types of life insurance.
|TERM LIFE||WHOLE LIFE||UNIVERSAL LIFE|
|Access to cash value|
|Potential to earn dividends|
|Flexibility to change death benefit and premium|
Choosing the Right Amount of Coverage
In general, your coverage amount depends on your financial needs and goals, but you may want to consider these factors:
- Potential income
- Debt load
- Standard of living you want your family to have
- Other expected expenses
What Determines Your Insurance Premium?
Insurers look at your health, family history and lifestyle to determine your rate class, which may include:
- Standard: Good health, average cholesterol, relatively low-risk lifestyle
- Preferred: Very good health and family medical history, low cholesterol, low-risk lifestyle
- Super-Preferred: Excellent health and family medical history, very low cholesterol, low-risk lifestyle