Experts agree that Life Insurance is something that people should have.
The real difference comes when you ask about what type of Insurance Policy to purchase. Some people think that a person should never purchase “Permanent” Policy (to be explained later) and that you should purchase a Term Policy and invest the difference.
Other experts believe that you should purchase as much Permanent Insurance as you can afford.
At ALLCHOICE, we believe in two truths!
- The best Life Insurance Policy (Term, Universal Life, Whole Life) is the one that is in force at the time of your death
- There is no one best Life Insurance Policy for every person and situation.
Let’s take a look at the different types of Life Insurance Policies that exist.
Term Life
What Is Term Life
Term Insurance is probably the most frequently purchased type of Life Policy.
Term Insurance, for the lack of better analogy, is like renting a house.
When you purchase the policy, the contract states the guaranteed term of the contract (example 10, 15, 20, or 30 Years).
The contract also states the amount of premium you will pay over the course of that specified time.
Most Term Life Policies sold today hold the premiums level for the entire term of the contract, however, there are Annual Renewable Term (ART) Life Policies which will increase in premium each year.
Why Buy Term Life
Simply stated Term Life Policies are the least expensive Life Policies you can buy. In essence, you get more bang for your buck.
Why To NOT Buy Term Life
As a person grows older, the actual cost of insurance increases. So, if you do purchase Term Life when you are young, as you near the end of your Term Policy you will be forced to purchase another Life Policy at a much higher cost.
In addition, should you have a change in health, you might not even be able to qualify for another Life Policy.
Whole Life
What Is Whole Life
If Term Life is the equivalent of Renting, Whole Life is actually purchasing the house! With Whole Life you enter into a contract with the insurance carrier that states you will pay a specified premium until you die and in return the insurance carrier will pay a Death Benefit to your beneficiary. Whole Life Insurance also offers the Tax Deferred Build Up of Cash Values within the contract. These cash values can be taken out of the contract completely should you decide you no longer need the life insurance, or they can be taken as loans against the policy should the need arise then repaid when you have extra capital.
Why Buy Whole Life
Whole Life Insurance is guaranteed to be there at the time of your death as long as you pay your premium. Whole Life Premiums are also set, so you will not face the situation where you are required to pay higher premiums as you get older. In addition to the guarantees of Whole Life Insurance, you will also have access to the cash value build up should you need those funds.
Why To NOT Buy Whole Life
Money$$! Whole Life Insurance premiums are much higher than the Term Life Insurance premiums. If you have a young family, your main concern might be obtaining the most insurance coverage that you can afford. The facts are that while Life Insurance Premiums are cheaper today than they will be when you older, you family needs the maximum amount of coverage you can afford today!
Universal Life
What Is Universal Life (UL)
Universal Life Insurance is a hybrid between Term Life Insurance and Whole Life Insurance. With Universal Life Insurance the person purchasing the policy has flexibility with regard to how much premium he/she will pay from year to year. The Universal Life Insurance contract states the minimum amount of premium a person can pay to achieve a certain amount of coverage for a certain amount of time. The Universal Life Insurance contract also states a maximum amount of premium a person can pay for a certain amount of coverage. Depending on the amount of premium you decide to contribute into the policy will determine whether the policy acts more like a Term Life Insurance Policy or more life a Whole Life Insurance Policy.
Why Buy Universal Life
Flexibility is the main reason most people purchase Universal Life Insurance. For a young person who understands the value of Permanent Life Insurance but can not afford to purchase a Whole Life Insurance Policy might purchase a Universal Life Insurance Policy and pay premiums closer to the minimum required premiums then increase his premium outlay as he gets older and is hopefully earning more money.
Why To NOT Buy Universal Life
Universal Life Insurance Policies are probably the most misunderstood Life Insurance Policies available. The reason is not that policies are bad, but those who sell these policies do not properly educate their clients about how the policies work. The same Flexibility that is the main selling point of the Universal Life Insurance Policy also becomes the biggest detractor. many people will purchase a Universal Life Insurance Policy and contribute as close to the minimum required amount of premium with the intention of increasing the premium payments “next year” when he/she has more money. The problem is that “next year” turns into “next year” and so on until the policy lapses due to there not being enough money in the policy to sustain the coverage.
The fact is that every member of your family (husband, wife, children) should have some Life Insurance Coverage in force. Whether both parents contribute a “paycheck” or if only one does, both parents have a “financial worth” to the family. The real question you may be asking is “Why do my children need life insurance?” Let’s look at each member individually.