It’s rare to find someone who thinks about buying life insurance for fun, considering the mortality implications, but it’s something that’s worth figuring out sooner rather than later. A life insurance policy is meant to provide financial security for your family or other dependents in the event of your death. They’ll have final expenses to worry about at least, and you may leave behind other financial obligations. In exchange for a monthly premium, an insurer will guarantee a death benefit to your beneficiaries, generally payable in a single lump sum. Of course, life insurance companies will have exclusions for deaths caused by suicide or illegal activity.
You may think that you don’t need to worry about finding an insurance company until you have a family of your own, but that isn’t necessarily true. You can buy a policy that simply covers final expenses in the event of your untimely death. It’s also easier to get approved for a larger coverage amount while you’re still young and in good health. While there are no medical exam policies out there, they may not provide the amount of coverage you need.
Here are some of the most popular types of life insurance policies, so you can start thinking about which makes the most sense for you and comparing rates before purchase.
Term Life Insurance
As the name implies, this type of life insurance provides a death benefit for an agreed upon period of time. Terms will generally be set in increments of 10 years, but you may be able to find a policy that lets you renew on a yearly basis in exchange for higher premiums. Speaking of premium payments, the main draw of term life is that these plans generally have the lowest premiums around, and you can always turn them into permanent policies later, making them a great choice for younger people without much financial security. Just remember that this policy only guarantees a death benefit and provides no other benefits.
A term life insurance policy is also a good option for those who just need financial security while they work toward a specific goal, like covering college tuition for their children. Once you no longer need life insurance coverage, you can let it expire or sell the policy.
Whole Life Insurance
This is one of the most common forms of permanent life insurance, and it guarantees a death benefit for the insured along with providing a cash value component. Basically, with this type of coverage, you can pay your premiums ahead of time to accrue cash value at a faster rate. The cash value of your policy is also yours to use as you see fit.
You can borrow against your cash value if the need arises, but it’s important to remember that this works the same as a traditional loan—you’ll need to pay it back with interest. You can also make a withdrawal from your cash value, but be aware that withdrawing too much can eat into your death benefit.
Universal Life Insurance
If you’re looking for something that shares the best of both worlds between a term life and permanent life policy, you’ll want to look into universal life. These policies tend to offer more affordable premiums than whole life, and you’ll still get some form of savings component. A variable universal life insurance policy, for example, allows you to build cash value through subaccounts that act like mutual funds. Just remember that your cash value can be affected by market volatility.
Life insurance is the best way to gain peace of mind about your beneficiaries’ financial situation, but you’ll have to find the right policy for yourself. Fortunately, it’s easy to check life insurance policy quotes online. Your premiums will largely be affected by how much coverage you need, your age and health at the time of purchase, and your lifestyle choices. Find the best life insurance for your unique situation today to start working toward financial security.