Life Insurance

What type of life insurance is best for you depends on a variety of factors, including how long you want the policy to last and how much you want to pay.

Photo by Jude Beck

Photo by Jude Beck

Term Life Insurance

Life Term Insurance provides life insurance protection for a specified period of time. Term life is sometimes convertible to permanent coverage, providing you with flexibility as your needs change.

How it works: You have to make only two decisions if you buy term life insurance: what amount you want and how long you want the coverage to last.

  • Pros: It’s easy to understand and is the cheapest way to buy life insurance.
  • Cons: You could outlive your policy. If you still need coverage when the policy expires, you’d need to buy another policy and will pay more based on your age and, possibly, health.

Whole Life Insurance

Whole Life Insurance is a form of permanent life insurance that remains in force for your entire lifetime, provided premiums are paid as specified in the policy.

How it works: Whole life insurance doesn’t expire. It’s the closest thing to “set it and forget it” life insurance. As long as you pay the bill, you don’t have to think much about the policy. Your payments stay the same, you get a guaranteed rate of return on the “cash value” investment component of the policy, and the death benefit amount doesn’t change.

  • Pros: It covers you for your entire life. Everything in the policy is guaranteed, so there are no surprises.
  • Cons: It’s a spendy way to buy life insurance.

Universal Life Insurance

Universal Life Insurance is a form of permanent life insurance characterized by its flexible premiums, face amounts and unbundled pricing structure. The savings element, premiums and death benefit can be reviewed and altered as a policyholder’s circumstances change.

How it works: These policies promise a certain death benefit, and payments don’t change. There’s typically little or no cash value within the policy, and insurers demand on-time payments. Missing a payment could mean you forfeit the policy. And since there’s no cash value in the policy, you’d walk away with nothing if you forfeit. If you’re sometimes late with bills, this is not the product for you. In addition, consider that future financial or health problems could cause you to miss a payment.

  • Pros: It’s cheaper than whole life and other forms of universal life insurance. You can choose the age to which you want the death benefit guaranteed, such as 95 or 100.
  • Cons: You must make every payment on time or you could lose the guarantee and forfeit the policy, thereby losing all your previous payments. The policy may have little or no cash value.