KJ: Do I need life insurance? If so, how much is enough? What type of insurance should I get? These are three very frequent questions when it comes to life insurance, and the answer to each one is a resounding – you guessed it – “it depends.” There’s no one-size-fits-all when it comes to life insurance and insurance rules of thumb are seldom appropriate for your unique situation and goals, so let’s start first by taking a look at what life insurance options are available – we’ll look at how to determine what amount of coverage you may need in a later post:
The most basic form of life insurance coverage is a term policy. You purchase insurance for say 1, 5, 10, 20, or 30 years of duration, and if you pass away within the term, then your beneficiaries collect the proceeds. If you live past the term, then your beneficiaries get nothing. The insurance premium you pay during the term is (typically) the same each year, and you can often continue coverage past the term, but the cost is usually quite prohibitive at that point. Term insurance can be a relatively quick, cheap, and easy way to obtain large amounts of coverage. Especially if you are able to get group term insurance through work, you may not even have to go through any underwriting to get the coverage.
This type of insurance doesn’t have an expiration date like a term policy does, so it can provide for an insurance need when the timing of your goals is uncertain. In particular, it may be appropriate if you would always like to have some type of coverage since it provides coverage until you pass away – regardless of how soon or far off it may occur. Permanent policies come in many forms including:
There are a plethora of bells and whistles out there with anything in between or combinations of the above insurance types. Unlike term policies that typically have a set premium for the entire term, a permanent policy could have the same premium each year for the life of the policy, it could increase, or it could even decrease depending on the performance of the policy and options selected in the policy itself. Notably, premiums can often be quite a bit higher for permanent policies compared to a similar coverage amount with a term policy since the coverage can be in force for a much longer period of time and doesn’t automatically lapse after a set term. Also, these policies typically accumulate a “cash balance” that could be used to transfer to a new policy, distributed in a time of need, and/or used to buy more coverage each year (as examples).
See also our follow-up post covering Making Sense of Life Insurance with more details outlining the ins and outs of selecting the right type and coverage amount of insurance for you and your loved ones.
- Do you carry life insurance?
What types of coverage do you have?
Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.