Choosing the right life insurance policy is an important decision, as you may want to ensure that your loved ones are cared for financially or that you don’t leave behind any debts. To find the best policy, you should consider your main concerns and determine which type of insurance matches your needs.
Compare Types of Life Insurance
Shopping for a life insurance policy requires you to compare insurance options, starting with the type of policy. Common options include:
- Term life
- Permanent life
- Final expense
Each option has different features and intended customers. Let’s explore.
Term Life
Term life insurance policies have a coverage length of up to 30 years. Some insurance companies offer term lengths as short as 5 years, but most options start at 10.
A term life policy provides temporary coverage for a specific span of years. For example, you may choose to buy a term life policy that covers the years until your kids are fully grown or until you reach retirement age.
After the term ends, the contract ends. However, you may also have the option to convert or renew the policy. Converting the policy into a permanent policy may save time compared to the typical enrollment process.
Permanent Life
Permanent life insurance is a type of life insurance policy that stays in effect for the rest of your life. Unlike term life insurance, which only gives you coverage for a specific period, permanent life insurance includes a savings component in a cash value account. This account grows over time and may even be borrowed against.
The premiums for permanent life insurance policies are typically higher compared to what you’ll pay for term life policies. However, you also get lifelong coverage and the potential for cash value accumulation.
Common types of permanent life insurance include whole life insurance and universal life insurance. Whole life policies include fixed death benefits and premiums while universal life insurance policies include flexible premiums and an adjustable death benefit.
Final Expense
Final expense insurance is a type of permanent life insurance policy meant to cover your end-of-life expenses, such as burial costs. It typically includes a smaller maximum death benefit compared to the other options.
Decide How Much Life Insurance That You Need
Here are a few tips to help you estimate the amount of life insurance that you may need:
- Assess your financial obligations
- Consider future financial goals
- Evaluate current financial resources
- Calculate your coverage needs
Most people aim to get enough life insurance to cover their major financial obligations, such as a mortgage, car loans, credit cards, and any other debts. You may also want your loved ones to use the death benefit to replace your income. A common approach is to cover 5 to 10 times your annual salary.
Along with your financial obligations, assess your financial goals, such as saving toward your spouse’s retirement and your children’s education. You should also evaluate your available financial resources. This may include current savings, investments, retirement accounts, and existing life insurance policies. You can also include your spouse’s income if they also contribute to the household’s finances.
Subtract your financial resources from your total financial obligations and saving goals to estimate how much life insurance you’ll want. You should now have a general idea of how much life insurance to get. The next step is to get several quotes for the same amount and compare premiums.
