You may know about the two different types of life insurance—term and permanent. That doesn’t mean you have the right kind of life insurance. You’re forced to make trade-offs unless you have amazing health and unlimited funds. You know yourself best. Will you question your decision later?
Price or value?
Term life insurance has a much lower premium than permanent life insurance in the beginning but rates jump at each renewal (often each 10 or 20 years). You may be tempted to save now but that means you’ll pay more later if you keep your insurance.
When you cancel term life insurance, you don’t get any money back even though you clearly didn’t die. Permanent life insurance can have tax-sheltered savings which you can use to:
- Pay your premiums if you want to take a “premium holiday”
- Borrow against if you need money (loans are tax-free)
- Provide cash if you cancel your coverage (a portion may be taxable)
The right kind of life insurance is the kind you can afford during the coverage period. You might like the value you get with permanent life insurance. Say you’re unable to pay the premiums in year eight and don’t have any savings in the policy. Your coverage will lapse. You could have purchased Term 10 life insurance for much less.
Similarly, you might buy term life and need coverage beyond the renewal date in 10 or 20 years. If you’re healthy, you can apply for new coverage. If not, you must renew your old contract and face much higher premiums. You can often convert to permanent without proof of good health, but you’ll pay premiums based on your age at conversion. That means you’ll pay more than if you bought permanent life insurance in the beginning.
You might want the advantages of permanent life insurance but have a fixed budget. Maybe you’d be better protected with more term coverage than less permanent coverage?
The approval process for life insurance can take weeks or months. Do you have the patience to wait? Maybe you’re getting the coverage for a mortgage that comes into effect next week. If you want speed, you can get quick-issue or simplified-issue products. The trade-off is that you’ll pay more.
Who wants to find an insurance advisor? You may be able to find suitable life insurance online and apply online. That is convenient but now you’re not getting independent advice. You may not be solving the right problem but don’t know this.
If you’re sure you know what you’re doing, you can make convenience a priority,
When you pick the wrong advisor or insurance company, you risk getting less for your money. When you buy, you’ll have difficulty gauging the quality of the after-sales service which each provides. Maybe you’re the kind of person who’d rather pay more (less) to get more (less)?
When you focus on life insurance, you may overlook risks you could transfer with disability insurance, critical illness insurance, and long-term care insurance. Those risks are often much higher than your chance of death. Since the premiums are higher too, you might put off getting protection.
What decisions today will you be glad you made years later?
Get a life insurance quote now.
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- When Can I Cancel My Life Insurance?
Flickr: Got Credit