What is the Best Type of Life Insurance?

Here is a breakdown of the different types of Life Insurance and their associated fees and costs. It will show the Real Cost of Life Insurance Coverage.

When it comes to choosing a life insurance policy, it can be hard to know which is the best type of life insurance for you. There are several life insurance types, each with their own fees, costs, benefits, and disadvantages. Watch the video above and read on to learn more about these different types of insurance policies and how to choose the best one for you. 

Term vs. Permanent Life Insurance Policies

When it comes to choosing from several life insurance types, there are many terms agents may use to describe a policy, so it’s important to understand some of the key concepts. The first life insurance policy terms to understand are term vs. permanent life insurance policies. 

Term life insurance is a more temporary policy that only covers you for a predetermined amount of years. During those years, you pay a fixed premium that is determined by your health and situation when you get the policy. Then if you die while you’re covered by the policy, your family receives a death benefit. Typically, term life insurance covers you for between 10 and 30 years. It is also the most affordable life insurance policy, but it only provides a death benefit. 

A permanent life insurance policy is an umbrella term that includes other common types of life insurance policies. Permanent life insurance is the overarching concept of a life insurance policy that covers you from the time you get the policy until you die. The premiums can be fixed or vary depending on the policy you choose. While most permanent life insurance policies have higher premiums than term insurance, this type of policy includes cash value in addition to the death benefit. Specifically, whole life insurance policies allow you to accumulate cash value that can then be used while you’re still alive. 

Important Considerations for Life Insurance Policies

The most important thing to consider when choosing the best type of life insurance is what you want your life insurance to do for you. If the only thing you want a life insurance policy to do is provide a death benefit for a certain time period, then a term policy may be the best choice for you. But if you want a life insurance policy that provides a death benefit and cash value, then whole life insurance is the best policy to choose. In addition, your situation in life and financial goals will also help determine the best policy for you. 

Another important consideration for a life insurance policy is the costs and fees. The best way to see the differences in costs, especially over time, is to compare the two policies for the same individual. Read on for an example of how these costs vary. 

The Breakdown of Policy Costs

The video above shows a visualization of the costs, but we will also break the example down here to show key considerations for which policy may be best for you. The example is coverage for a 47-year-old female. After 30 years of coverage, she has paid $21,030 in premiums for a term policy while she has paid $74,730 in premiums for a whole life policy. This difference in premiums is what draws some people to the term insurance plan. 

After only one year of coverage, that same 47-year-old woman would have $1,055 in surrender value from a whole life insurance plan while she has no surrender value with a term insurance policy. In 30 years, she still has no surrender value from a term policy, but she has $72,383 in surrender value with her whole life policy. The difference is drastic between these values. So if you are looking for life insurance with a surrender value, whole life insurance is the best type for you. 

Finally, it’s important to consider the real costs of coverage for a policy. The real costs are determined by subtracting the surrender values from the premium costs. The resulting number shows how much this woman would actually be paying over her 30 years of coverage. The term life insurance policy has a real cost of $21,030 because the policy has no cash value. On the other hand, the real cost of the whole life insurance is $2,347. The woman may have paid $74,730 in premiums, but she also gained a value of $72,383. So in the end of 30 years, she has really only paid $2,347. 

This example shows that while term life insurance may have lower premiums, it doesn’t provide the cash value you may be looking for in a life insurance plan. Whole life insurance does have higher premiums, but those premiums begin to even out over time as your cash value increases.

The Bottom Line—How to Buy Life Insurance

Choosing a life insurance policy is a decision that will vary based on your financial goals, situation in life, and desired costs. The key is to choose a life insurance policy that fits your needs and that is beneficial. Here at Life Benefits, we can guide you through the process of selecting the right policy and then how to make that policy work for you. 

How to buy life insurance can be a complicated process, but with the right guidance, it can be easy and very beneficial. To learn more about how to buy life insurance and what the best policy for you is, schedule a free strategy session with one of our experts.