What life insurance do I need?

When you take out a life insurance policy, you’ll either be paying premiums monthly, quarterly or annually – and it’s likely you will need to undergo a medical exam first, to determine your insurability, as well as the level of premiums you’ll have to pay.

According to The Insurance Bulletin, there are several types of life insurance policies available. If you’re unsure which would be best suited to you, read on as we take a look at some of the most common ones.

Term life insurance

As its name suggests, when you take out a term life insurance policy, a stated death benefit is offered for a fixed term (or period of time). The policy will only provide a death benefit, and there will be no additional cash value or investment component.

Despite this being the case, it can be a good option in certain situations. For example, parents who have young children may take out term life insurance to guarantee their children will be financially supported, should anything happen while they are still young.

It isn’t a good option if you know you are going to need the death benefit beyond the set period of time. However, term life insurance is an inexpensive option – and the premiums will be cheaper in comparison to a permanent product.

Whole life insurance

If you take out a whole life insurance policy, this will be permanent and the premiums will be fixed for life. It is a more expensive option, in comparison to term life insurance. However, as well as the death benefit, it will also offer cash value – which is a form of savings.

If we take a look at this aspect in further detail, the cash value can be used while the policyholder is still living, but will not be paid out to beneficiaries until the policyholder’s death. The insurance company will also pay a predetermined amount of interest on the cash value.
Whole life insurance is a good option for those looking for long-term coverage, and it can also be beneficial for those estate planning, or who have beneficiaries they’d like to provide for, when they pass away.

Universal life insurance

Universal life insurance is similar to whole life insurance, and also a permanent policy. Similarly, there is a cash value element, and your premiums will go towards that and the death benefit. However, the main difference between the two is that you can change aspects of the policy without getting a new one – meaning the payments are not fixed.

This is an ideal policy if you’re looking for flexibility, without the worry of being tied into something for life – even though it is a permanent option. The death benefit can be increased or decreased, and as long as premium payments are made, it’s 100% guaranteed.

It may sound easy, but it is, in fact, one of the more complex options on the market.

Variable life insurance

Another permanent policy, variable life insurance provides a death benefit, as well as cash value – the difference here is that the policy also has an investment feature.
This allows investment into sub-accounts, similarly to how mutual funds work – which could prove beneficial.

However, at the same time, there’s a level of risk involved, and this could have a negative impact.
As you’d expect, the premiums will be higher on variable life insurance, say, in contrast to term policies – and the cost will vary, depending on your policy. The death benefit may be a level benefit, or it may include some – or all – of the cash value in addition to the death benefit.

Variable life insurance is usually taken out by those looking for a tax-deferred investing option.

When researching your life insurance options, it’s important to consider a number of factors. Ask yourself how much you can afford to pay in premiums, how often you can make those instalments, and if you will need the death benefit for a fixed term or permanently.

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