Choosing the best life insurance policy can be a tiring task. Most insurance companies and agents are quick to tout the virtues because of the commissions these policies provide.
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Before you decide to get insurance and spend significant time determining which policy is ideal, you may want to consider the following:
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Do you need life insurance?
Even though life insurance provides financial protection and security for family members, particularly those with kids, the needs vary depending on their situations. If you don’t have any dependents, you may not need life insurance.
However, if you are the breadwinner, or your income is essential in supporting your loved ones and covering the family’s financial needs like mortgage repayments, children’s college fees, and other recurring bills, then purchasing insurance is vital in ensuring that those obligations are met in case you pass away.
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Your age is another vital factor to consider.
So, what type of insurance is the best?
Before you start collecting and comparing insurance quotes, it’s essential to have a better understanding of life insurance.
There are three major types of life insurance:
Term Life Insurance
This kind of insurance provides a set amount of coverage for a period that has been predetermined, like 10 to 30 years, and premiums are usually flat.
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For most individuals, term life policies provide the best combination of cost and coverage. It’s the most popular as it’s the cheapest means to get the most coverage for a relatively short period.
It also has a renewal option, making it easier to walk away from the policy when your needs change or when you come across a better deal.
The Pros of Term Life Insurance:
Affordable – It is the cheapest form of life insurance. Most companies offer term life at rates that enable individuals to purchase policies with bigger face values than they could otherwise afford.
Covers a Temporary Need – This type of life insurance covers only 20 or 30 years. So, if you and your partner have saved enough money for your retirement and your children are now working, you might not require life insurance.
Easy to Purchase – You just need to determine the amount of coverage you need and how long you will require it, and then you can get a quote from the insurance providers in your region. The rest is just to find a competitive rate.
Has an Expiry Date – If you still need life insurance coverage after the term expires, you might find it hard to get term life coverage as you get older. If you are not in good health, it becomes even harder to secure coverage.
No Money Paid Out – As mentioned, term life expires on the predetermined date, so if you are still alive then or cancel at any time, you won’t get anything back.
Whole Life Insurance
Whole life insurance, ideally known as Permanent life insurance, covers you throughout your entire life.
Fixed Premiums – Although permanent life insurance premiums are more expensive than term, the premiums remain the same over the policy’s period, which stays in effect until you die.
It is Permanent – Whole life policies do not expire, given that you’ve paid your premiums regularly and on time.
Forced Savings – This is perhaps one of the best benefits. This type of policy can be treated as a tax-deferred savings account and can be tapped when you retire.
Guaranteed Payouts – Whole life insurance is worth considering because you are certain the policy will be paid out, unlike term life insurance.
The biggest disadvantage of permanent life insurance is the expensive premiums, which tend to deter people from subscriptions.
Return of Premium (ROP) Life Insurance
This type of life insurance covers you for a certain period, for instance, 30 years, and if you survive the term of the policy, the insurance provider returns the paid premiums.
Affordable – ROP is not as cheap as term life insurance but is still far cheaper than permanent life. An ROP policy costs about 50% more than an equivalent term life insurance plan.
It is a Compromise – As mentioned above, you get all your money back if you manage to outlive the policy’s term. However, if you happen to pass away before its expiry, a death benefit is paid out to the beneficiaries.
No Return on Investment (ROI) – If you outlive the policy’s term, you will only receive what you paid for, and if you cancel it, you won’t get anything in return.
As you can see, there are various types of insurance, and all have their pros and cons. The best depends on your needs and how much you can afford to pay for the premiums.
So, to make a wise decision, weigh the pros against the cons and consult a financial expert on the same.