I’m founder of CEO of Acute Quote. Since 1986, we’ve helped millions of people save money on their life insurance. When you boil it down, there are really only 2 kinds of life insurance, temporary coverage, which is called term insurance and permanent insurance. Both term and permanent life insurance comes in various different shapes and flavors to satisfy different need.
Permanent life insurance is designed to provide coverage for as long as you live. If your needs are long term like a state planning or final expenses, or if you just want to leave a bigger legacy, no matter when you die, permanent insurance is probably the way to go. There are lots of different kinds of permanent insurance, but the two primary categories are whole life and and universal life.
Term life insurance is, by definition, temporary insurance. It’s designed to provide coverage for a limited period of time, typically 10, 20 or 30 years. Term policies are simple and extremely inexpensive. In most cases, your cost each year is guaranteed to remain level for whatever the term is, again, typically 10, 20 or 30 years. After the term is over, make sure you’re sitting down when you receive your premium notice because your rates are going to jump up dramatically, sometimes by a factor of as much as ten or more. But some of these policies have a built in conversion that allows you to trade in your term coverage for a shiny new permanent policy.
Term life makes sense if you know when you’re going to be financially independent. Or if you’re sure there’s some date down the road where no one will be depending on you any more financially. Like when your kids are all grown up and your mortgage is paid off. Term is also good when you’re younger. And your biggest concern is getting the protection in place and keeping your costs down. If you’re a non smoker in your 30s and health, you can buy it 20 year, $250,000 term policy for less than $20 A month. Sound too good to be true. Well, it’s 100% true.
Now back to permanent life insurance, whole life and universal life insurance are more expensive than Term. But let’s take a look at what you’re getting for the money. Unlike term insurance, permanent insurance is generally designed to last forever. You can’t out leave a permanent life insurance policy. With most permanent policies, as long as you pay your premiums on time, your family is guaranteed to receive the death benefit no matter when you die, whether that’s tomorrow or 50 years from now. Unlike term insurance, permanent insurance policies can also build cash surrender value, which can be accessed at any time for any reason.
You can set up your premiums to remain level for life guaranteed. You won’t have to worry about premiums going up when you get older and forcing you to drop the policy, nor will you have to worry about being healthy enough in the future to re-qualify or replace the coverage. If you like, you can also arrange to pay for the policy over a shorter period of time, say 10 years. So that after that, you own the coverage and no further premiums are due for the rest of your life. Universal life insurance, one kind of permanent life insurance, offers a certain amount of built in flexibility. You have the ability to change your premiums and death benefits to keep pace with changes in your life.
Whole life insurance is what I refer to as the Rolls Royce of life insurance. Whole life costs more than all the other types of life insurance we’ve discussed. But it does more. Over time, these policies develop significant cash get cash values that are guaranteed and can be accessed at any time. Regardless of what happens in the economy, each year the cash values grow guaranteed.
What’s the best kind of life insurance? That’s actually a tough question and an easy question. Different people have different need. If there were really only one best kind, there would only be one kind.
I actually own all 3 types of life insurance we discussed today. My whole life policy, for example, I bought 25 years ago. I pay $4,635 each year. Right now it has a cash surrender value of $217,000, better than a lot of my other investments for sure.
In the end, the best kind of life insurance to own is the kind that’s enforce on the day you die. If your policy is not enforced on the day you die, you bought the wrong kind.
For most people, the best way to make sure that happen is to own a policy with an affordable level premium for life. I hope this quick overview is help.