Deciding what type of life insurance to choose is not an easy task. Many insurance companies, brokers and agents will aggressively push to sell you the type of insurance that gives them the biggest commission, so you should make sure you know what you need before you sit down to talk with an insurance person.
There are three main types of life insurance available today, and here’s a short overview of their similarities, differences and pros and cons for each of them.
Term Life Insurance
Term life insurance plan will provide it’s holder with insurance coverage for a specific period of time, usually 5 to 20 years, and for a flat rate, predetermined premium. This is probably the most popular type of life insurance out there, since it offers the lowest entry cost and is the cheapest way to get the most coverage over a relatively short period of time. It also makes walking out on the commitment relatively easy, if and when you find a better option. Term life insurance is the most affordable type of life insurance available, and it allows most people to get insured at a larger face value than they would otherwise be able to afford. It’s also easy to understand and buy – you only need to decide on the period and the amount of coverage you need, and you can start asking for quotes and comparing offers. It’s also renewable every year, so you can always switch to a different provider if you find a more affordable offer. On the other hand, it’s limited to a certain time period, and if it expires when you’re older, it might be difficult to get re-insured again. And if it expires or you decide to cancel it, you’ll get nothing back, so it might not be the best way to invest.
Whole Life Insurance
Also known as the Permanent life insurance, Whole life insurance covers you for your entire lifetime. Obviously, it’s main advantage is that it’s permanent for as long as you pay your premiums. They are not cheap though, mainly because the premiums also go into a sort of savings account that can be tapped into when your older. And although the premiums are much higher than some other types of insurance, they are guaranteed not to increase over time. But the main advantage of this type of insurance is that it guarantees to pay out your policy.
Return of Premium Life Insurance
Return of Premium Life Insurance is a middle ground between the two extremes. It provides a death benefit that’s payed out in case of your death, but if you live longer than the policy stands for, you will get the money you invested in it. And although it’s not exactly as affordable as the term life insurance, it’s much less expensive than Whole Life insurance is – it usually costs 50% less. On the other hand, it’s major drawback is that it offers no return of investment.