Choosing Which Type Of Life Insurance
There are two basic types of life insurance you can purchase, term life insurance or permanent life insurance. Term life insurance covers you for a set period of time. Permanent life insurance covers you for the rest of your life.
Term life insurance has considerably lower premiums but when your term expires renewing it will usually be more expensive as you will be much older and hence a greater risk of death than when you first bought the policy. Permanent life insurance also known as cash value life insurance has much more expensive premiums but also give the chance for the policy to increase in value with a investment component tied into it.
There are also many types of permanent insurance to choose ranging from whole life, variable life, universal life, and variable universal life. The key differences being in the ranges of flexibility in the premiums and the amount of control you have over the investments.
Many financial experts will have widely differing viewpoints on which type is best but it will mostly depend on each individual’s financial situation. The savings on premiums by choosing term life insurance may yield you a higher rate of return if you invest those savings wisely.
On the flip side while returns on the cash value portion of permanent life insurance tend to be lower than average stock market returns they have very attractive tax shelter implications depending on how the death benefits are paid out. With uncertainty over estate tax legislation in the upcoming years this becomes a very important consideration to the decision on which type to choose. The best advice is to sit down with your financial advisor so that you can make an informed decision on the best way to take care of your dependents needs.
