No one really likes to think about life insurance. It isn’t because you don’t want to take care of your responsibilities, it’s usually just because life insurance is all about providing for your loved ones after you’re gone. In order to do that, you have to think about death instead of life and that can be difficult. But buying life insurance doesn’t have to be difficult. Learn what types of life insurance exist and how you can buy the best coverage for your needs.
Just like auto insurance is a contract between you and your insurance company, life insurance is also a contract between you and the insurance provider you choose. In most cases, life insurance provides a lump-sum payment to your beneficiary upon your death to cover expenses like:
In some instances, life insurance may also replace income. Because there are different types of life insurance, it’s important to know what each type covers to make the best choice for coverage.
Life insurance is meant to cover expenses after the insured is gone. Because people have different needs past the general final expenses of funerals and burial, different types of life insurance are available for what you may need. The three major types are:
Also known as pure life insurance, term life insurance is a policy that covers a specific period of time. Time periods usually last from 10 to 30 years. Term life insurance expires at the end of its term if it hasn’t been used, so rates are determined by factors such as age, gender and state of health. Other factors include:
You may benefit from term life insurance if: you’re young with children or only need life insurance for a specific amount of time.
Term life insurance is good for meeting needs like: paying off a mortgage, paying for college or keeping a business running.
Unlike term life insurance, whole life insurance is permanent and doesn’t have an expiration date. Also known as traditional life insurance, this type of policy provides coverage for the life of the insured. It usually has higher premiums but unlike term life, whole life has a cash value. This gives you a savings component that you don’t have with term life insurance.
You may benefit from whole life insurance if: you need to build equity.
Whole life insurance is good for meeting needs like: estate planning and transfer of wealth to beneficiaries.
Similar to whole life insurance, universal life insurance is a form of permanent life insurance but it has more flexible rates. Unlike term life, universal covers your entire lifetime, but flexible rates may allow you to raise or lower your premium payments throughout your lifetime.
You may benefit from universal life insurance if: you need to build equity and want to be able to borrow against your policy.
Universal life insurance is good for meeting needs like: flexible estate planning and extending income replacement past working years.
| Insurance Type |
Term Life Insurance |
Universal Life Insurance |
Whole Life Insurance |
|---|---|---|---|
| Needs it helps meet | Income replacement during working years | Wealth transfer, income protection and some designs focus on tax-deferred wealth accumulation | Wealth transfer, preservation and, tax-deferred wealth accumulation |
| Protection period | Designed for a specific period (usually a number of years) | Flexible; generally, for a lifetime | For a lifetime |
| Cost differences | Typically less expensive than permanent | Generally more expensive than term | Generally more expensive than term |
| Premiums | Typically fixed | Flexible | Typically fixed |
| Proceeds paid to beneficiaries | Yes, generally income tax-free | Yes, generally income tax-free | Yes, generally income tax-free |
| Investment options | No | No | No |
| May help build equity | No | Yes | Yes |
Insurers consider risk, so they use rate classes which are based on the risk of insuring someone to help determine the cost of premiums. These risk categories don’t affect the length or amount of coverage, though. These factors include health, medical and lifestyle factors. The higher your risk, the higher your payments. But the experienced and qualified agents at Wilson Insurance can help you find the best rates on life insurance for your needs.
Now that you’ve seen what each type of life insurance can do for you, you can think about your life insurance needs. First, ask questions to determine the type of life insurance you need:
1. Do you need insurance for a lifetime (permanent) or for a specific period of time (term)?
2. Do you need to cover end-of-life expenses only or will you need to replace income?
3. Do you have a sole beneficiary or multiple beneficiaries?
Next you’ll need to choose a coverage amount. You’ll want to consider the amounts each beneficiary will need. Depending on the needs you want to meet, some general factors to keep in mind are:
• Your income and how much of it you’ll need to replace
• Your assets
• Any liabilities or debts that will need to be paid
• Other insurance you may have, including that providing by your workplace
• Any other costs or expenses your family may have
Finally, you’ll want to consider life events that may affect the amount of coverage you need. The following table can give you an idea of milestones that might affect the type and amount of life insurance you’ll want to buy. It’s also a good list of times in your life to reconsider your life insurance coverage.
| Consider life insurance when you |
Consider an amount that covers |
Consider a coverage period equal to |
|---|---|---|
| Get married | Student loans or other debts, income, and home expenses | Any duration |
| Buy or improve a home | Mortgage and/or home equity loan (Typically, insurance is purchased to pay off the principal amount of the loans but not future interest.) | The term of your loan |
| Have a family to support | Family income needs and new debts | The time when you expect you will no longer have dependents |
| Change jobs | Potential income based on your new salary and any gaps in insurance provided by your new employer | The length of time you expect to need to earn income |
| Start a business | Expected revenue, debts and future expenses, and maintenance of the general business structure | Lifetime or the length of time you anticipate owning the business |
| Plan a child's college education | Future college expenses (e.g., private college, public university, graduate programs) | The anticipated graduation date of the child |
| Plan your estate | Funeral and estate expenses, including estate tax, wealth transfer | Your lifetime |
Any time you update your overall financial plan is also a good time to reconsider your life insurance coverage. Wilson Insurance Services is ready to help you determine what kinds of life insurance you need to ensure the well-being of your loved ones. Contact us today to talk to one of our qualified agents so you’re prepared with the right life insurance for your needs.