The primary purpose of buying life insurance is income replacement after an untimely death. For this reason, life insurance is a long-term financial commitment that requires an in-depth analysis of your income vs. expenses, assets vs. liabilities, and overall lifestyle.
Because of its importance, consumers should take the time to compare life insurance policies, riders, rates and companies to find the best coverage for their family’s needs.
How To Compare Life Insurance To Get The Best Deal
Whether you buy a 30 year term life policy or opt for permanent whole life insurance, you could be paying for premiums for most of your life and it is vital that consumers compare the pros and cons of each type before purchasing.
In this article, you will learn about the different types of life insurance, their features, and all the basics to help you find the best and most affordable policy for you. After you’ve gotten an idea on how to compare life insurance policies, we highly recommend you take advantage of free life insurance quotes online to see how much coverage they can afford.
Term Life Insurance
As you research policies, you will quickly realize that term life insurance is the cheapest and most popular kind of life insurance available. Your term life insurance rates, death benefit and term period are fixed for the life of the policy, until you must renew or reapply.
The term can be from 3 months to 10, 20 or 30 years, but when the term period is up, if the insured person has not died, the insurance company makes no payments or payouts. Unlike permanent protection, there is no cash value.
Although standard term life can be seen as rigid, there are other types of term life insurance that are more flexible. First, term life is not permanent coverage, meaning it does expire and you can purchase a different amount of coverage in the future.
Second, you can include certain riders to customize a policy to your needs.
For instance, mortgage or decreasing term life insurance offers a death benefit that decreases on a schedule. The policy can be tied to your mortgage so your family’s residence is protected, or can be indirectly associated with a decreasing need for coverage as your income and assets increase while expenses and liabilities decrease, resulting in a lower need for protection.
Finally, there are policies that make the term length flexible (renewable or convertible) and ones that affect who is actually covered in the policy and when payouts will be made (second to die/survivorship or joint term).
Term Life Insurance Pros and Cons
Here are the most essential pros and cons of term life insurance to consider. If term seems right for you, research the different plans available and see which best addresses your individual financial needs.
- Premiums are cheap, so you can buy more coverage for less.
- Flexibility with the death benefit, term period, premiums, and insured individuals.
- Temporary coverage that can cover obligations that will disappear over time, instead of a life-long commitment.
- Premiums increase as you grow older and health issues arise, affecting your insurability in the future when your policy expires.
- No cash value, saving feature or investment component. If you outlive the term period, no payout is made.
- Does not offer a lifetime of protection.
Universal Life Insurance
Universal life insurance is a type of permanent life insurance with flexible premiums based on a minimum and maximum rate – as long as you continue to pay the minimum premium, the universal policy maintains its good standing; however, no equity is built and the cash value does not grow.
The universal life insurance cash value is invested in financial instruments like stocks, bonds, and mutual funds and the more premium you pay into the policy, the more money is put into the investment account. If you research life insurance as an investment, whole life insurance represents a more secure investment, but universal life may yield higher returns. Returns on both kinds are tax-deferred until they are withdrawn.
Furthermore, universal life insurance offers you the option to request a low-interest loan from the insurance company. Using your equity as collateral, you are entitled to withdraw up to a certain percentage of your cash value. Even better, the loan does not have a repayment schedule; however, any outstanding balance may be deducted from future claims and/or payouts.
In regards to a payout, the universal death benefit is fixed, but you do have the option to increase or decrease the insurance coverage as your assets, liabilities, and lifestyle needs change. Changes in the death benefit result in changes to your premiums.
Whole Life Insurance
Whole life insurance is another kind of permanent policy offering a fixed premium and death benefit. Whole life also accrues a cash value that has a guaranteed rate of return. The yield you get is set forth when you agree to the contract, and currently, many companies are offering around 4%. Because the rate of return is risk-free and guaranteed, consumers could see whole life as a very high yield savings account with insurance.
If you compare rates, you will find that whole coverage has the highest initial premiums compared to term and universal protection. Nonetheless, over the long run, experts and financial advisers estimate that whole vs. term life insurance rates are comparable, especially when taking into consideration the benefits of the cash value feature and the higher renewal rates for term life as you age.
Finally, like universal life, you can borrow against your policy’s cash value, using it as collateral for a low-interest loan. When a claim is filed and a payout is processed, the insurance company will pay you the face value of your death benefit minus the outstanding balance of your loan.
Note: Although many advisers tout the advantages of whole life insurance as a good investment, we disagree. When you compare life insurance quotes, you will likely find that whole life policies cost about 10 times more than term. If investing your money and building a nest egg is one of the reasons you are drawn to whole life, it is our recommendation that consumers buy 30 year term life insurance and invest the difference in premiums.
Life Insurance Rates By Age
Life insurance rates are based on your age, lifestyle habits, current health, medical history, and occupation at the time you apply for coverage, as well as the type of policy, the term period, and death benefit amount. This means that, with all things being equal, a 30 year-old male will always get cheaper term life insurance than a 40 or 50 year-old male.
Here are a few examples of term life insurance rates by age for a 20-Year, $500,000 Term Life Insurance Policy. The premiums are monthly dollar amounts.
- 25 Years Old: $25 per month
- 30 Years Old: $30 per month
- 35 Years Old: $33 per month
- 40 Years Old: $45 per month
- 45 Years Old: $70 per month
- 50 Years Old: $105 per month
- 55 Years Old: $155 per month
Please note that this is an example to give you an idea of how affordable term life insurance is and the amount of coverage you can buy. Your actual rate quotes will be different and based on your own risk profile and policy options.
Supplemental Term Life Insurance
Cheap rates and flexibility also make term life insurance a perfect choice when additional protection is needed to cover debts and liabilities. An existing term policy may not be adequate if you purchase a larger home, invest in real estate, buy a small business, or have more children.
By buying supplemental life insurance in tiers, you can ensure that your family will always enjoy some form of insurance protection.
For example, you can buy a 30-Year, $500,000 Term Life Policy when you get married at 30. By the time you are 35, you have 2 children and a home, so you decide to buy a 30-Year, $1,000,000 Term Life Policy. More than likely, these two policies will combine to give you enough coverage for your lifetime, but as we mentioned earlier, there are other factors you need to consider.
Compare Life Insurance
If you are interested in learning more about a policy customized to your needs, check out a free, instant life insurance quote. Consumers can choose the type of coverage, death benefit, and term period they want and compare rates from the best life insurance companies.
Comparing life insurance quotes online can help you get an idea of the types, coverage options, premiums, and insurance companies available.