How to Choose Life Insurance

Different life insurance options are beneficial to consider during different stages of life. The most common options to choose from are term life insurance, whole life insurance, and universal life insurance. You may want to make your decision based on your current life stage and financial situation. These options can feel overwhelming but knowing your loved ones will have financial protection can help provide a new sense of peace.

Term Life Insurance

Term life insurance offers coverage for a set time period. Young people may prefer term life insurance due to its lower premiums and higher coverage amounts over the term. Young people face many major life events that can make term life insurance useful.

Stages of Life Which May Benefit from Term Life Insurance:

• A term life insurance policy can be used when buying your first home. You may want your term to last until your home becomes paid off. This may help ensure that your mortgage can be paid if you passed away.
• Young parents may want life insurance until their children become adults. The policy would ensure that children are financially supported in the case of a deceased parent.
• Unsecured debt also may make term life insurance important. Credit card debt must be paid, even if the cardholder is deceased. Many young people have credit card or student loan debt, so setting up a term policy until your debt is paid off would be beneficial.

Keep in mind that the premiums will increase at the end of each term period, and the policy will usually expire before age 100. A death benefit is only paid out to the beneficiary for term life insurance if the policyholder’s death occurs during the term. Term life insurance offers the coverage young people need during a time when they are in high financial risk. While this option may be beneficial primarily for young people, anyone facing major life events that require coverage for a specified amount of time would also benefit.

Whole Life Insurance

Whole life insurance coverage lasts a lifetime. Some policies can even cover up to age 121. Whole life premiums are higher than term life premiums, but whole life policies offer financial benefits that term life policies do not offer.

Stages of Life Which May Benefit from Whole Life Insurance

• The policy accumulates cash value throughout the policyholder’s lifetime. If accumulated cash could be useful to you, you may want to consider this option.
• Purchasing the policy when you are young and healthy may keep the premiums lower.
• Premiums are the same throughout the life of the policy, so you could have low premiums throughout your life if you purchase at a young age.
• Whole life insurance premiums are initially higher in comparison to term life insurance premiums.
• A death benefit is guaranteed to be paid at the end of the policyholder’s life, making this option best for someone concerned with legacy. A guaranteed death benefit means your beneficiary would receive a tax-free payment.

Purchasing whole life insurance at a young age means locking in lower premium rates and helps you achieve financial protection during all of life’s stages. However, many young people might not have the financial security needed to choose this option. Coverage for life and a guaranteed death benefit are ideal for a forward-thinking individual.

Universal Life Insurance

Universal life insurance is permanent life insurance that covers your entire life. It includes a tax-free death benefit and the ability to build cash value. It differs from whole life insurance due to its flexible premium options. For many universal life insurance policies, you can choose to increase or decrease your premium payments based on how fast you want your cash value to grow if you pay sufficient premiums to maintain coverage. Premiums needed to maintain coverage are not guaranteed and may change over time.

Stages of Life Which May Benefit from Universal Life Insurance

• Just like whole life insurance, this option can accumulate cash value. This option works for people wanting the ability to build cash but not currently in a position where they can commit to a set premium.
• As your financial situation improves, you may be able to increase your premium payment so cash can begin to accumulate.
• The death benefit is guaranteed until the policyholder becomes deceased as long as sufficient premiums are paid to maintain coverage over time. Someone wanting the death benefit but unable to pay higher whole life insurance premiums should choose this option.

Maximum benefits occur from this option when you pay the higher premium rate. Universal life insurance works best for those wanting the benefits of whole life insurance, but with more financial flexibility.

No matter which option you choose, thoroughly consider your stage of life and financial situation when choosing the protection for you and your family.

This information is intended to be educational. It is general in nature and should not be considered legal or tax advice. Consult an attorney or a tax professional regarding your specific situation. These products may contain limitations and exclusions.

This blog is up to date as of March 2021 and has not been updated for changes in the law, administration or current events.