What Type Of Life Insurance Do You Need?

Life insurance is one of those things that most of us know we need, but we don’t know what kind to get, how much we should get when we should get it, or how long we should keep it. Fortunately, it’s not that complicated. If you understand the options, many times, the solution presents itself.

There are two principal types of life insurance:

1. Term life insurance provides a death benefit for a predetermined number of years. The term varies but is usually between 5 and 30 years. The premiums are fixed over the lifetime of the agreement. The premiums are calculated based on various factors, but age and current health have the most significant influence. It all comes down to life expectancy. 

• A 10-year term policy for a 70-year old will be more expensive than the same policy for a 30-year old, all other things being equal. Similarly, two people of the same age and gender will pay different rates if one is obese and smokes.
• Term life insurance is the least expensive type of life insurance.

2. Whole (permanent) life insurance has a death benefit combined with an investment or savings account. But this policy covers you until your death; there is no set expiration date. The premiums are fixed or can vary, depending on the details of the policy. 

• The premiums are dependent on your age, gender, health, medical history, and more, similar to a term policy.
• Whole life isn’t the optimum choice for most folks. While it does accumulate a cash value through the investing/savings aspect, the premiums are several times more expensive than comparable term life insurance coverage. It isn’t the best tool for saving.
• Whole life insurance does allow the policyholder to borrow against the current cash value. But this diminishes the policy’s value until the money is paid back. Most financial experts consider whole life insurance to be a poor choice.

There are several different styles between term and whole life insurance, including universal life insurance, last-to-die and first-to-die policies that cover both spouses, and more. However, if you understand the concepts of term and whole life insurance, it will be easy to understand any other type of life insurance your insurance professional might recommend.

Consider your life circumstances: 

1. Single and no dependents. Most people in this category do not need life insurance. One of the few exceptions might be if your parents are not financially well off; you might want to get a small policy to pay for your funeral/burial costs.
2. You were recently married. Consider how your spouse would fare without you. If you don’t have children, you probably don’t need life insurance yet. However, it is worth considering if your spouse is not well employed and likely to struggle long-term without your salary.
3. They are expecting a baby. Now is the time most responsible future parents will purchase life insurance if they can do so. Consider how much coverage it will take to cover your take-home pay until your children are at least 18. You might want to consider the cost of college as well.

• Remember that life insurance payouts are generally not taxed. You don’t necessarily need to cover your entire salary, just the take-home portion. This will allow your family to maintain the same standard of living. If you already have life insurance, you should revisit your amount of coverage anytime a new child is on the way. 

4. Your term insurance has probably run out by now. Ideally, you would also have a healthy nest egg, your house paid off, and all your kids out of your hair, reducing your need for life insurance. Life insurance premiums at retirement age get very expensive, too.
   • If you decide to get permanent insurance, now might be the time to cancel it and get the cash value out of the policy. You probably don’t need the policy any longer anyway.

For financial security, you’ll most likely need some life insurance at some point in your life; however, very few people need it throughout their adulthood.

The easiest way to determine if you need it is to consider the financial impact your family would have endured if you were gone. You want to eliminate that impact to the best of your ability.