One of the most necessary insurance policies but often least talked about, as it can be a sensitive subject, is life insurance. And once you do start talking about it, it can easily go from sensitive to confusing quickly. Many factors can determine what type of policy you need, but the definitive thing is – you definitely need to have something in place. Let’s discuss the differences and benefits of both a term policy and a permanent policy, to provide you some insight and get you on the right path.
Term Life – Since this is generally the most affordable, this is often looked at as the most popular go to option – this is especially true when you are younger and can lock in a low rate for the length of time you choose to write the policy for. On a basic policy with no guaranteed renewability, at the end of that time frame, you haven’t died, the policy simply expires. The most common policy periods can run from 10 years all the way to a locked in rate for 30 years – (e.g. – if you are a perfectly healthy 25 year old, locking in a 30 year term policy will carry you all the way to 55 with no change in the premium for the entire life of the policy). Additionally, even as you grow older, a healthy 40-year-old would also benefit rate wise by locking in the max term length.
Rates are not solely based on age for most policies – for a normal fully written term policy, medical testing and underwriting are required to gauge lab results and determine if the person who seems healthy is as healthy as think. They will often consider your risk factors from family history, your current recreational usage of nicotine, alcohol, and any drug use. These policies do not accrue cash value over time.
Permanent Life Insurance Policies (Universal Life, Whole Life) – While these policies run on the more expensive side and are not always budget friendly, they do offer plenty of perks. Generally (most of these policies) over time, build a cash value that the policy holder can draw against, for home or college loans.
Whole life policies are typically the most expensive of them all, but they also offer the most perks. This policy is designed for people who want one policy set for their entire life with only having to worry about the (hefty) premium that usually comes with it – the death benefit on this policy remains the same from day 1 and the return of cash rate never changes.
With Universal life policies, there is more fluctuation and options available, and can offer a lesser premium as well. A variable universal life policy value can change day to day based on the market and policy holders need to be much more hands on. There are also other products such as indexed universal life that can be considered.
With a guaranteed universal life, you get a set death benefit with no surprise changes in premium. However, this policy offers very little, if any, cash value. This policy also has no commitment, but if you accidently forget even one payment, your policy could be considered forfeited and you would have to reapply for a whole new policy.