Different Types of Life Insurance: What’s the Best Fit for You?

If you were to survey millennials about their financial goals, finding the right type of life insurance probably wouldn’t rank high up on their list.

Most folks who haven’t purchased life insurance cite the cost of policies, their age, and their current health as reasons for not buying. Figuring out which of the different types of life insurance is right for you can be pretty overwhelming, too.

However, experts recommend that folks of all ages prioritize life insurance as an investment to protect their loved ones. After all, unlike other policies that protect against possible mishaps, this type of insurance protects your family from the possible financial fallout of life’s only truly inevitable event.

So, once you’ve considered the benefits of life insurance, it’s time to hunker down and study the different types of insurance in order to select the right policy to protect you, your loved ones, and your legacy.

In this article, we break down the main types of life insurance in order to get you started on figuring out which one is right for you.

What are the different types of life insurance?

Life insurance can be divided into two main categories: term insurance (think of this as temporary coverage) and permanent insurance (which, well, never expires). Within each of these categories, there are a range of other policy subtypes available to help better meet folk’s needs.

Term life insurance is temporary, meaning that it only provides coverage during a pre-defined period of time—normally one, two, or three decades. While it may not provide as comparatively high payoffs, entail cash-value benefits, or last as long, it is often more affordable.

Permanent life insurance policies are supposed to provide coverage till death do us part. That is, forever. This type of policy is great for folks who want to protect big investments and estates and to leave loved ones with a heftier inheritance upon their passing. These policies can also provide additional benefits during the policy holder’s life time.

What are the advantages and disadvantages?

Different types of life insurance exist because folks have diverse coverage needs over the course of their lives.

Term life insurance is great if you want to protect the people who depend on you but are also on a tight budget. While not as long-lasting as permanent policies, term insurance is advantageous in that it is more affordable and monthly costs often do not increase.

So, if you want a policy that won’t break the bank while you’re paying off your student loans, mortgage, or kids’ education, term insurance might be the best fit. Plus, young and healthy folks can often get very low-cost term life insurance plans, making it a popular choice amongst those of us who are just starting out.

At the end of a term policy’s life, you may be able to renew it (although this can often be quite expensive) or convert it into a permanent policy. These details, of course, are important to establish before you sign off on the policy.

Read also: What you should know about retirement planning

Permanent life insurance is, well, permanent. As you might have guessed, this type of life insurance tends to be a bit more expensive, but provides greater relative benefits. Many policy packages ensure that monthly premiums remain level throughout the life of the policy.

Additionally, many permanent policies allow you to access cash-value benefits throughout life. Policy holders can use these financial rewards to receive payments, pay off the policy, or create investment portfolios. Another benefit of permanent life insurance is that you don’t have to requalify for the policy down the line, meaning that illness or injury won’t affect your coverage.

What about whole and universal life insurance policies?

Permanent life insurance policies can be broken down into various subcategories, but for now we’ll focus on two important ones: whole and universal life policies.

Although both whole and universal policies tend to be pricier than term life insurance policies, they last forever. Plus, if you make your premium payments on time, your family is generally guaranteed to receive a hefty premium, regardless of if you pass at age 50 or 150.

Universal life insurance is a more flexible policy in terms of its coverage, cash-value rewards, and cost of monthly premiums. This can allow you to organize payments and payouts according to the ebb and flow of your financial life.

Your kid needs braces? You can lower monthly premiums for a few years. Get a promotion? You can increase those premiums and work towards paying the plan off early so as to avoid paying premiums later on in life.

Whole life policies are, generally, one of the most expensive types of life insurance. However, as you might guess, they come with big benefits. These policies tend to generate the largest cash-value of any policy (which grow steadily, independent of the ups and downs of the economy) and also entitle your loved ones to a very large payment after you pass.

The variety of different kinds of life insurance policies might seem overwhelming. However, when it comes to selecting the correct policy, remember two key points:

1. Different policies work for different folks at different times.
2. The best policy is the one which will effectively protect your loved ones when you pass.

While whole life insurance might seem like the most attractive option, if you can’t afford monthly premiums, your coverage might be jeopardized, and your family might not be protected.

Selecting the best possible insurance requires a bit of financial literacy and planning, but if you consider these tips, you’ll be well on your way to protecting your future, your family, your investments, and your legacy.