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Choosing the Right Type of Life Insurance

April 14, 2019

Choosing the right type of life insurance is a very important step in making sure your family is protected. However, it can be confusing to know what’s the right choice. While working with an independent agent is the best way to determine the best type of life insurance for your unique situation, here are a few guidelines to consider.

When to Choose Term Life Insurance

  • If you need life insurance for a specific period of time. Term life insurance helps you match the length of the policy to what is needed. This works great for making sure there are funds to pay for your kids college education if something were to happen. It is also useful to make sure your debt can be repaid.
  • If you need a large coverage amount, but have a limited budget. Term life insurance is generally cheaper than permanent coverage since the rate per thousand deaths is much lower. If you are alive at the end of the term, coverage stops unless the policy is renewed or you buy a new one. Also, unlinke permanent coverage, you will not build equity in the form of cash savings.
  • If you think your financial needs may change, you may also want to look into “convertible” term policies. Convertible policies allow you to convert to permanent insurance without a medical examination in exchange for higher premiums. Keep in mind that premiums are lowest when you are young and increase upon renewal as you age.

When to Choose Permanent Life Insurance

  • If you need life insurance for as long as you live. Permanent policies pay a death benefit no matter if you were to die tomorrow or if you die when you’re over 100.
  • If you want to accumulate a savings that will grow on a tax-deferred basis and could be a way to borrow funds for a variety of reasons. You can borrow from this savings element even if your credit isn’t great because the death benefit is collateral for the loan. The insurance company then collects what is due to the company before determining what’s paid to the beneficiary.

Keep in mind that premiums for permanent policies are generally higher than for term insurance. However, the premium in a permanent policy remains the same no matter how old you are, while term can go up substantially every time you renew it.