Life Insurance 101: Which is Best For You?

Choosing the right type of life insurance is an important decision. In addition to choosing the policy and amount of protection you want, you’ll also have to choose between whole (permanent) and term life insurance policies. The former is designed to be with you for as long as you live, and they often cost significantly more than term policies, which are issued for a specific period (as the name suggests). So, how do you choose? Here’s what you need to know.

Term Life Insurance

For those who need insurance for a specific time frame, term insurance is usually the best option. It is more affordable than whole life insurance, in most cases, and can be purchased for terms of 10 or 20 years, and sometimes more. These policies are great for people who have children or are in situations where they want protection for a specific need.

Because term insurance only pays if you die during the term covered, you will not have coverage once the policy expires unless you convert the term policy to a whole life insurance policy. You can renew term policies or terminate them, but they don’t typically build equity as many whole-life policies do.

Permanent (Whole) Life Insurance

Those who want insurance for the duration of their lives will want a whole-life policy. There are several types of policies within this category, but they all have one thing in common: they don’t have to be renewed like term policies. They continue for the duration of your life so long as the premium is paid, and they often include a savings element that helps you prepare for other expenses down the line.

Permanent policies are going to be more expensive at first, in most cases. However, the premium remains the same for the duration of the policy, while term policies might increase at renewal time.

How to Choose

When selecting the best life insurance policy, consider the following factors.

Insurer Reputation

Before you even get down to the details of the policy, you need to make sure that you’re working with a reputable life insurance company. Check out their ratings and reviews, as well as how they handle claims and payouts. There’s nothing worse than buying life insurance only to find out that when it comes to filing the claim, the insurance company is going to balk at paying. All of their customer service should be top-notch, but especially the claims process.

Coverage Term

This is one of the most important elements in choosing a life insurance policy. Do you want coverage for 20 or 30 years while your children grow and head off into the world, or would you rather be protected for your entire life? Think about why you’re buying the policy in the first place—that will usually tell you what kind of term you want (or if whole life is better).

Amount of Coverage

Life insurance should include enough coverage to take care of all of your final expenses and anything that you leave behind, as far as bills and dependents go. The good news is that you can get hundreds of thousands of dollars in coverage for a lot less than you think, which is more than enough for most people.

Exclusions or Limitations

Make sure that you check whether there are any exclusions or limitations on your life insurance policy. For example, some policies won’t pay in the event of a suicide or murder, while others might pay double for an accidental death caused under certain circumstances, and so forth. Ask about this before you agree to a policy.

Choosing life insurance is all about getting what’s best for you. With these factors in mind, that should be easier than you realize.