Selecting the right type of insurance coverage is easier when you understand how the different types can work for you. Life insurance can be purchased two basic ways; term or permanent.
Term Insurance is purchased based on a specific time-related need. That may be to cover a mortgage or loan, to protect a family until children reach adulthood, or some other life milestone. Beyond which time, the coverage may not be needed.
Term plans are an affordable way to get a large amount of coverage. As the name implies, it has a certain term limit which expires usually around age 80. Generally, the premium increases in steps of 5 to 30 years, depending on the plan. The shorter the term, the lower the premium, since the insurance company is taking on a shorter risk time period.
Most term insurance plans have the option to be converted in part or fully to a longer term or a permanent plan by a specific date with the same company without medical underwriting.
There is a unique type of term insurance, sometimes called ‘Term-life’ or ‘Term-to-age 100’ which doesn’t expire until death. the premium stays the same throughout the payment period, but ends at age 100.
Permanent Insurance plans also don’t expire. These can be useful tools to preserve your estate value by covering final expenses such as a large tax bill. They can also help equalize an estate by compensating children who may not inherit an asset such as a farm or small business. They can also provide a way to build tax-sheltered savings.
Universal and whole life insurance are the most common forms of permanent life insurance. Universal life policies offer more options and are more flexible than whole life policies, allowing you to adjust the premium payments and the death benefit over time. It’s best to discuss the many options with an insurance professional.
As permanent policies cover you for longer time periods, they have stricter underwriting standards and higher premiums. Once approved, you’re covered for life and changes to your health aren’t an issue.
Shopping for Life Insurance: Most policies allow insuring multiple lives at a slight discount. Riders can cover children until they reach a certain age, usually around 25, convertible without further underwriting to a limited amount of individual coverage. There are many other riders available that you can ask your agent about.
Many people delay applying for life insurance until they get married or when the child arrives. But there are at least two good reasons to consider applying before then. The earlier in life you apply, the lower the cost to protect your future family. By delaying you also run the risk of future health issues preventing you from qualifying.
For some, a blend of term and permanent may be the answer, with the term running out when your debts are paid off and the kids are gone. The permanent coverage can be kept to pay for final expenses, to conserve or equalize your estate for those you leave behind, or to build tax sheltered wealth.
One simple rule is; buy as much low-cost term insurance as you can afford while you are young and healthy. This way you are locking in your insurability which cannot be taken away from you as long as you pay your premium.
Sit down with a qualified insurance professional to help determine your specific needs and find a suitable product.