Many people know that they need life insurance but are unaware of the different types available to them.  The need for life insurance usually arises after the death of a loved one.  The costs associated with burial expenses and family needs can become extremely expensive and burdensome.  These costs will then cause the surviving family members to consider purchasing a life insurance plan to hedge against these risks in case of unexpected losses.  The main source for life insurance information, however, is advertisements on television or radio.  What many individuals are unaware of is the type of life insurance that these advertisements are offering.  So the question to ask is, “what type of life insurance do I really need?”

Term life insurance is the most commonly known form of life insurance available.  Ninety percent of the time when an individual calls to request a life insurance quote they are looking for Term.  This is a very competitive market, especially since policies can be issued for pennies on the dollar.  This type of insurance is widely sought after by those considered “rate shoppers” because they are looking for the cheapest rate possible.  This idea is easily established because Term Insurance provides someone with the largest amount of coverage for the lowest price.  Term is a great product for single individuals, single parents, young adults, young professionals, or those who are unable to afford any other type of protection.   The one thing that people seem to overlook is that Term Insurance is, as it states, only issued for a short term.  These policies are issued anywhere from 10-30 years, and at the end of the period issued the individual will have to renew, convert, or find another policy.  What this means is that if someone were to get a 10 year Term policy at age 27, then at the end of the term they will have to purchase another Term policy at the attained age of 37.  The insurance will cost more because the individual is now 10 years older.  For Term Insurance issued in excess of $100,000 individuals will be required to take what is known as a ParaMed Test.  This test is administered by a Paramedic, who will come to a residence or place of business to conduct usual physical testing such as urine testing and blood work.

So what makes Term life insurance appealing and a great opportunity?  Well, obviously, the individual is getting the most coverage for the smallest price.  Term Insurance can be a great tool for young professionals just starting out in the work place.  This gives them or their spouse protection for mortgage payments, cost of living, burial expenses, and other costs that could arise from sudden and unexpected death.  Since these professionals are only starting out, they do not possess the income range needed for a more permanent protection.  Therefore, Term Insurance provides them with the protection they need at an affordable cost.  Term Insurance also has the benefit of adding Other Insured Riders, which can allow the primary policy owner to cover additional household members such as their spouse and children, at a lower cost as well.  The benefit of the Other Insured or Children’s Rider is that once the child reaches a certain age, usually around 21 years or older, they can then convert the Rider into a separate policy of their own in their own name without evidence of insurability.  Term life insurance is also a great way for those who only want to insure something of value, such as a mortgage, credit line, or another other form of debt, for a short amount of time or until the item is paid off in full.  Business owners can benefit from Term life insurance by insuring a partner’s interest in the company.  Corporations will typically use Term life insurance to insure higher level associates, whose unexpected death could interfere with the company’s cash flow or daily operations. Another impressive aspect of Term Insurance is the ability, at any time before the end of the term, to convert the policy into a Whole life insurance policy without evidence of insurability.   So, Term life insurance can be a wonderful product for those who know exactly what it is and what will happen at the end of the term.

Whole life insurance is known as “Permanent Protection.”  What this means is that the individual is covered for their entire life and the premiums paid will remain level for their entire life as well.  This is not getting into the more complex Whole Life products, such as Universal Life or Variable Universal Life, because these operate in a different manner.  Whole life insurance will inevitably cost more than Term life insurance, but to offset the cost the individual will be getting a more extensive product.  Whole life insurance includes what is known as a “cash value.”  The cash value is, essentially, a savings component that accumulates over the life of the policy.  At any point the policy owner can use some of the cash value without having to pay it back later.  This does, however, reduce the death benefit paid out upon death of the insured or policy maturity.  Some individuals will use the cash value to pay premiums due on the policy when they are unemployed or possibly do not have the funds to pay in a specific month.  Many Whole life insurance policies offer a dividend that is paid out as well.  Whole life insurance pays out, obviously, upon death but will also pay out upon policy maturity.  The policy maturity is a predetermined age, usually at age 100 or older, in which the entire benefit amount is paid out to the insured regardless of the fact that they are still living.

Whole life insurance is usually chosen because it has level premiums for life and the fact that the beneficiary receives payouts that are income tax free.  When making a comparison, premiums are much less for someone starting today with a Whole Life policy, as opposed to what the premiums would be once the individual takes a Term Life policy and has to renew at higher rates.  Most individuals do not consider this when purchasing life insurance.  Many companies offer Whole life insurance products to cater to any individual’s needs.  Several Whole life insurance policies have a special rider called the Accelerated Death Benefits Rider.  What this does is allow the policy owner to access anywhere from 50-90% of the death benefit if they were to be placed in a nursing home facility.  Another interesting aspect in many Whole Life policies is an annual dividend that is paid out to policy owners.  When the board declares the dividend, the policy owner has several options available to them for receiving their share.  The most commonly used option is called Paid Up Additions.  This allows the policy owner to purchase extra Life insurance on top of what is already established, creating an even greater death benefit payout to their beneficiaries.  When an individual can afford the costs, Whole life insurance is a great way to leave on a legacy or ensure proper estate planning for future generations.

When it comes to life insurance, everyone must consider whether or not the product they are reviewing is in their best interest.  Knowing the types of life insurance types can provide for better decision making for both the insured and the beneficiaries for future planning.  An experienced Financial Advisor will also be able to lend a helping hand in understanding the vast array of life insurance products available.  Be sure to ask for brochures and inspect the product inside and out, so that the price to product aspects measures up to what is truly needed and/or required.