We don’t want to sound like a sales rep here, but the truth is: any time can be the best time to buy life insurance! Perhaps the better question to ask is “Which type of life insurance do I need right now?” Life insurance can seem complicated, but EINSURANCE.com is here to help! We’ll attempt to answer this question for you now, but don’t hesitate to contact us directly to speak with a licensed insurance agent.
There are so many kinds of life insurance, with this article we’re going to break them down into two manageable topics and show you when it is best to buy life insurance.
We should also point out that many people have several different kinds of life insurance at once. If you have one policy already, there is no law saying you can’t get another.
Two Types of Life Insurance: Term Life Insurance and Whole Life Insurance
All the bells and whistles aside, there are two primary types of life insurance:
- term life
- whole life
When Should I Buy Term Life Insurance? What is Term Life?
“Term” means time. Term life insurance will protect you for a set amount of time. It can be five, ten, even thirty years.
- During your “term” you will pay the same premium every month for coverage.
- Rates are generally very low.
- The insurance company cannot raise your rates during your term unless you don’t pay the bill (or if they find out that you lied about something important, like lying about your age, or claiming you’re cancer-free if you’re not).
Term life insurance is an excellent fit for:
- Single parents who can’t afford a huge premium payment, but want to know their children are financially protected.
- Couples who want to leave money for their spouse or children.
- Folks who have a big mortgage to pay on their home, and would like the house paid off if they die.
- Anyone who wants to leave a considerable estate to a beneficiary.
The critical point we need to make about term life insurance is that it isn’t permanent. After every term is completed, you can enter a new contract with the insurer. Naturally, every time you renew this contract, your price will probably increase.
- A healthy 40-year-old will pay less than a healthy 50-year-old, for instance.
- Tobacco use dramatically affects your price for almost any kind of life insurance.
Any time of your life is a great time to purchase term insurance. If you’re lying awake at night wondering what will happen to your loved one if you pass, or what will happen to YOU if someone important dies, term life insurance will settle those doubts for you.
We must point out that unlike whole life insurance policies, term policies do not build cash value. They are not investments. This segues nicely into our next type of insurance: whole life.
When Should I Buy Whole Life Insurance?
Whole life is another way of saying “permanent” life insurance.
- Unlike term, whole life is meant to be a contract that lasts your entire life.
It seems much more expensive than term life, but that’s because the insurer will allocate some of your premium into an interest-building account on your behalf. In other words, whole life insurance is a long term investment. Yes, it provides a cash benefit for a beneficiary if you die, but it also builds cash value over the years.
That cash value can come in handy later as:
- a lump sum of cash, if you cash out your policy entirely
- a stash of money you can borrow from, and pay back the insurance company quickly
- collateral if you need to get a big loan, you can prove to the bank you have funds set aside and can pay them back
In some cases, you can sell your whole life insurance policy to a life settlement company. (If you’ve ever heard the term “hedge funds” this is what they mean.) It works like this:
- You have a $100,000 whole life insurance policy. You’ve been paying on it for fifteen years.
- The current cash value is $20,000.
- A life settlement company will buy that policy from you for more, maybe $50,000.
- That company now owns the policy and will continue to make premium payments until you die.
- They will collect the $100,000 death benefit upon your death.
*(Please note, those numbers are just for illustration, your actual benefits may be higher or lower, we don’t know your contract details.)
Whole life insurance is an excellent fit for:
- Young, healthy people who want to protect their loved ones and build an investment.
- Parents, who want to start their young children off with a financial nest egg for their future.
- Anyone looking to leave an estate to a beneficiary.
Nobody wants to imagine a tragedy, but one of the best things you can do for a youngster is to buy them a whole life insurance policy when they’re little. Since their premiums will never increase, you can get coverage for just a few bucks a month. Over time, those few dollars will earn interest, and eventually your loved one will have a considerable amount of cash built up.
Years from now, that child might use those funds to:
- help fund their education
- put a down payment on a home
- put a down payment on a new car
- leave them alone and build a retirement fund
Looking Deeper Into Types of Whole Life – What Is Universal Life Insurance? What about “Flexible Life”?
Universal life insurance policies, also called flexible life insurance policies, fall under the category of whole life. In a nutshell, these policies allow for changes in your income over your lifetime.
- If you’re making a great income now at age 40, but expect to retire at 65, and would like to pay lower premiums at that time, these types of insurance might be your best choices.
What About Funeral Insurance, Pre-need Insurance, or Final Needs Life Insurance?
These whole life policies are all meant to pay for your final wishes. They are generally small death benefits, ranging from $1,000 to $25,000 on average, and they’re meant to pay for your burial or cremation, and all the services therein (embalming, cosmetology, monument engraving and so on). In most states there are two ways you can access these sorts of policies:
- through your life insurance agent
- through your family funeral home
These types of policies are also great to purchase at any age. Remember, the longer you have a whole life insurance policy, the more it’s worth. So even if you’re quite young, the interest gained on a small funeral insurance policy should certainly cover inflation and increasing costs of your final wishes.
In closing, we hope you’ve enjoyed our blog about types of life insurance, and when you should buy them. Every individual has their own goals and struggles, and EINSURANCE is here to help you make the right life insurance choices. Get in touch with us today for a free quote, or to discuss the right kind of life insurance for your needs.