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.
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
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.
Avoid These Common Mistakes When Buying Life Insurance
1. Assuming your group life insurance is enough.
Many employers provide group life insurance as a benefit, but it may not be enough for your needs. When you leave the company, it might end. Be sure to consider your other options and augment your group insurance policy.
2. Getting the wrong kind of life insurance policy.
Be sure you understand your options before you settle on the type of insurance to buy. Should you get term or permanent? With term insurance, your payout happens within a set amount of time, say 20 or 30 years. If you outlive your policy no one receives the benefits. Permanent (whole, variable and universal), however, has no such limitations. Permanent policies are more expensive, but have cash value. Learn more about the differences, and the pros and cons of different types, here.
3. Thinking you’re too young to get life insurance.
Purchasing a life insurance policy while you’re young and healthy might be the way to go. Your policy will cost less than if you wait until you’re older. Rates increase as you age and become less healthy.
4. Choosing a minor as beneficiary, or not naming a beneficiary at all.
If you don’t name a beneficiary and leave your insurance payout to your estate, it could be stuck in probate for a long time. Don’t name a minor as a beneficiary. Instead, name a trusted adult or set it up as a life insurance trust for your children. Be sure to identify a trustee. Find out more about naming a beneficiary in our article Who Will You Name as Your Life Insurance Beneficiary?
5. Not comparing policy rates.
Don’t just go with the first policy you get a quote for. Compare rates and find out how much you’d pay for the same policy coverage with different providers. A life insurance quote tool can help you find the policy you need at the best price.
Should You Buy Life Insurance For Children?
The two main reasons to buy a life insurance policy for a child:
1. To cover expenses should the child die.
A policy could help fund related medical bills and funeral costs.
2. To guarantee the child’s insurability as an adult.
If the child develops a health condition, he or she would probably be declined for individual life insurance as an adult. A policy bought for a child lets them purchase a policy as an adult without having to have evidence of insurability.
If you have the financial means to cover major costs when they arise, you probably don’t need to buy a life insurance policy for your child. Parents who are affluent are better off investing money in a college savings plan such as a 529.
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.