The decision to buy life insurance is one of the most critical decisions we make, which is why the decision as to which type of life insurance policy to buy can be just as critical. You can’t really try on a life insurance policy, so the one you choose needs to fit you like a glove from the outset. The challenge for most people is the sheer number of different kinds of life insurance products from which to choose. The choice is made easier when you have a clear understanding of your own needs, priorities, preferences, and outlook on the future. Working with an experienced life insurance professional, you should be able to narrow down your choices.
Fit the Policy to Your Needs
The process for choosing a life insurance policy has to begin with a thorough and honest assessment of your financial situation and your protection needs. The mistake many people make is to assume that the need for life insurance will only last as long as their children are dependent. However, the need for financial protection could continue long into the future if there are still debt obligations or if one of the spouses lacks the capacity to fully replace the income of the other spouse. There may come a point when adding more coverage or renewing an expired term policy could become prohibitively expensive, especially if you should become uninsurable in the future.
All of these factors are critical to the decision as to which type of life insurance to purchase, and should be considered in the context of your specific situation.
Permanent (Whole Life) Insurance might be right for you if….
You wish to add more certainty and stability to your protection plan. Though more expensive than Term Life, because a portion of your premium goes towards cash value, whole life insurance guarantees your death benefit, your premiums, and your cash value growth. The cash value growth keeps your insurance costs down in the later years, which is how the insurer is able to level your premiums. Eventually, your cash value can be used to pay down premiums or for any purpose you might have while you are living.
Universal Life Insurance might be right for you if…
You assume that your need for life insurance won’t be temporary, but you want a more economical way to keep permanent coverage in place. Universal life offers a lower cost alternative to Whole Life; however, there are no real guarantees. Some universal life policies allow you to buy a no lapse guarantee rider to offer more guarantees. Because the cash value component is separate from the death benefit component, there is no guarantee that the cash value growth will be sufficient to maintain the target death benefit, so you may have to increase your premiums to catch it up. Because the policyholder assumes more of the risk, Universal Life insurance is less expensive than Whole Life.
Variable Life Insurance might be right for you if….
You understand the nature of risk and reward, and that, if you are going to be paying a premium for permanent life insurance, you might as well have the cash value component working as hard for you as it can. With Variable Life insurance, the cash value component is actually a set of separate accounts that can be invested in various types of stock and bond funds. The potential for higher returns offers the opportunity to pay up your policy more quickly or have more funds available for retirement. As the cash value may vary greatly due to the returns from stocks and bonds markets, you must be able to tolerate higher volatility and have a long time horizon.
Term Life might be right for you if….
You know with some degree of certainty that your need for life insurance protection will not last beyond a certain point. Term Life is also a more affordable choice for people on tight budgets, and its low cost makes it almost inexcusable for any family not to have this critical protection. However, should you determine that your need for life insurance is likely to continue, or that you won’t be able to accumulate your own capital sufficiently, it would be important to consider a permanent form of life insurance. In many cases, the ideal choice is some blend of the two.
Level term life insurance allows you to lock in the annual premium for a specific time period such as 10 years, 15 years and 20 years. Some term policies allow you to convert the term policy to a permanent life insurance policy when you can afford higher premiums or your needs change without going through medical underwriting.
At Echo Wealth Management, we help our clients use the Echo Dashboard to determine their insurance gap by reviewing existing life policies before recommending the right type of policy for clients. In addition, Echo has an insurance license enabling her to be your independent agent to compare products using independent insurance brokerage firms.