What is the right type of life insurance?

| June 16, 2014

There is a broad – and somewhat confusing – array of life insurance policies available in the marketplace. But there are really only two primary types of life insurance – temporary and permanent. And once you understand that, it becomes much easier to select policies that fit your family’s needs. Simply put, temporary – or term – insurance, is best for covering temporary needs; and permanent – or Whole Life – insurance is best for covering permanent needs.

A term life insurance policy provides a specified death benefit to the designated beneficiary or beneficiaries if the insured dies with the term – or period of time – defined by the policy. So if you have two children, ages 8 and 10, and your priority is to ensure that they will be able to attend college even if you die and are not around to pay their tuition, your best option is probably a 15 or 20-year term policy that provides coverage equal to your best estimate of their total tuition.

A permanent life insurance policy provides a specified death benefit to the designated beneficiary or beneficiaries when the insured dies – whether that’s next year or 50 years from now. So if your spouse doesn’t work and you aren’t on track to accumulate a significant amount of money for retirement, you should give serious consideration to purchasing flexible Whole Life coverage.  The proceeds could be used to pay off debts, pay for final expenses, or the policy’s cash value could be accessed for the purpose of generating income.

Whole Life insurance generally makes more sense for someone who is young and healthy – because that’s when you can lock in the lowest premiums. Second, it’s more important to buy the right amount of coverage than the right type. So if your permanent needs exceed your insurance budget, buy less expensive term insurance that can later be converted to Whole Life to fill the gap.

This article was reprinted from a First Command Financial Services publication.

 



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