Types Of Insurance
There are few moments more sobering in an adult’s life than when it comes time to purchase life insurance. Attempting to plan for those left behind is a challenge, as there are many factors that play into which policy is correct and how much is enough for each person. Consultation with a licensed professional is important, as is a clear plan of what you would like to have happen in the event of your premature death.
Keep in mind these policies are typically for younger adults with children and few assets or those nearing retirement in their peak earning years. In both cases, the family’s financial support is dependent upon each person generating income and having protection for an emergency is a smart decision. Large companies often include life insurance plans as part of their benefit packages, so be sure to review it before seeking out a private policy. You might find better coverage at a substantial savings using the group plan.
Available life insurance policies are either labeled “term” or “permanent” based upon the stipulations in place. Though each one has several different types within the category, it’s best to look at the general differences and allow your life insurance professional to help you choose a policy based on your precise needs and goals.
Term policies are aptly named: they are purchased to cover an individual for a set period of time and usually come in decade-long increments (10-, 20- or 30-year). These are designed for individuals whose financial needs are likely to diminish over time. For example, a 32-year-old married man with three children is going to require more financial protection early in the policy. If he purchased a 30-year term policy, it’s more than likely his house will be paid off and his kids will be out on their own when the policy lapses. Unlike a permanent option, this plan only pays out during the set term and does not accrue a cash value. For these reasons, it is generally the less expensive option. In the event death does occur, beneficiaries will receive the pay out free from income tax. There are usually options available to keep the coverage amounts set or allow them to change, guarantee renewal or even conversion into a permanent policy if the owner chooses to do so. This is where speaking with a knowledgeable professional becomes handy.
Just as with its counterpart, permanent life insurance is exactly what it sounds like. This type of coverage protects the individual for the rest of their life and, like a 401(k) or other retirement account, can build up a cash value over time. As long as the premiums are paid according to the terms stated, you’re covered. As with term policies, there are many choices centered around personal preferences for flexibility and even programs designed to keep estate taxes from interfering with inheritance when the last spouse dies.
Because of these differences, it’s impossible to say one type is better than the other. Take the time to speak with an life insurance agent and allow them prepare something tailor-made to protect your loved ones and fit in your budget.