Are you thinking about life insurance options and not sure what life insurance is best? The best life insurance is dependent on factors like what you want it for, what can you qualify for, and what is your budget. The short answer for what’s best is: it depends.
Here are some things to be aware of, and things to consider when trying to decide what life insurance to select for your circumstances.
What types of life insurance are there?
Term life insurance
Temporary life insurance is a good first for those that have a lower budget and want to get started. Term policies generally last anywhere from 5-to 30 years. You can add riders to slightly alter the policy, my favorite for younger individuals is the return of premium so you get all the premiums paid back after the term duration is over.
Banks sometimes ask those applying for loans get a term insurance policy covering the period of the loan to help reduce their risk in the event of their premature death.
Term insurance has a ridiculously low percentage for payouts while in force. In addition to that, the older you get the more incredibly expensive a policy becomes to renew or even purchase, especially after age 50.
Something else to consider with term insurance is that you as the policyholder will never be able to use any of the death benefits personally, and if you outlive the policy all those premiums are wasted (unless you have the return of premium rider). So, if you want to avoid a situation where you are “renting” then it’s better to get a permanent policy.
Check out this article to better understand what happens when a term life insurance policy ends
Final expense life insurance
Final expense policies are more often used by those over 50 preparing for the inevitable. That being said some people use them as a mortgage protection option for their family when they can’t really afford much of a premium.
Final expense policies are small whole life policies with a death benefit maximum of up to $50,000. Each company offering them has a slightly different maximum so check around. You may also hear them called burial expense policies or funeral expense policies.
As of 2021, the average burial cost is about $9,000 and with all the inflation and other economic issues we may face in the future this will only go up.
Whole life insurance
This is the most commonly used permanent life insurance option. Whole life is a great option for those wanting to build a cash value policy especially if they want to build an investment portfolio.
Of all life insurance options available this is by far the most used as collateral by banks to secure loans. On that note, only permanent life insurance options even have that as a possible option (of course depending on the bank and banker you speak with).
Permanent life insurance is a good option when you are self-employed as well as looking for a retirement account option. Especially if you don’t qualify for 401k, IRA, or Roth IRA due to exceeding the income limits since no income limit exists with life insurance.
Universal life insurance
Also, a permanent life insurance option has some flexibility that whole life insurance doesn’t have. Situationally a good option depending on what you are wanting to do with it. If you are considering permanent insurance, whole life often times has better performance but some situations make this the choice to go with.
Also to note is that permanent life insurance policies can’t be outlived. So long as you make your premium payments they are guaranteed to pay out. Most go until age 100, at which point you are paid out the cash value amount which is typically designed to equal the death benefit (the policyholder would get the cash value not the death benefit as no death occurred).
Variable universal life insurance
Tied to the stock market for cash value growth these policies are not something I recommend. Where whole life and universal life give you basically full control over the use of the cash value, that is lost as you can’t control the stock market ups and downs.
What’s different after 50?
Insurance premiums increase as you get older, however, at about age 50 insurance rates have a significant increase in rates. The reason for this is that a large percentage of those over 50 are taking at least one medication if not more.
This increases the risk of potential loss for an insurance carrier making it necessary to increase rates a bit more to cover the unknown loss of life.
What should you look for?
If you’ve never purchased life insurance before and arent sure where to start then here’s a simple guideline: If you have the monthly income for a whole life policy(specifically designed for maximum cash value growth) then go that route to protect your family your entire life but if you don’t have the income get a convertible term policy.
Determining how much to get in a term policy is simply done by adding all your debts up and going with that amount or taking your annual income and multiplying it by 25. These are known as a needs analysis and a human life value approach respectively.
No medical exam options
There are some insurance options that do not require a medical exam and which can be an important consideration for those over 50 especially. This type of policy is usually for final expense and term insurance. You pay a bit more for them however for those that are unsure they would qualify due to health concerns that may come up in a medical exam it’s something to keep in mind.
Life insurance: best answer?
Deciding what life insurance is best for you and your situation is not a straightforward answer other than saying it depends on what you want to cover and within what kind of budget?
Now, I will take a stand here and say that it’s my opinion that there is a place for everyone to have a cash-value building whole life insurance policy. We all continue to have a need for income as we get older and having a max cash value building policy with passive income options added to the use of that policy will significantly increase your financial stability.
Outside of that what do you want life insurance for? Do you have life insurance already? Do you have a specific budget? These are just some questions that you may be asked by an agent trying to help you solve the problem.
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