Which Kind Of Life Insurance Is Best For You?

People and companies purchase life insurance policies for different reasons. All policies provide a death benefit, but that might be used to help families cope with the loss of a breadwinner, cover funeral expenses, accumulate an asset, transfer wealth to the next generation, or even protect a business. Ultimately, the most important thing to consider when you’re shopping life policies is your coverage needs in terms of your age, health, and financial obligations.

The truth is that younger and healthier people pay less for life insurance coverage, because insurers will expect you to survive the term of your policy or to renegotiate terms as you convert a term policy into a permanent policy later in life. Some younger people choose to purchase a larger term policy to cover a home, growing family, and other obligations. Then they lock in lower rates with a smaller permanent policy for lifetime coverage.

That’s why it’s important for younger clients who need less coverage or are unsure of their coverage needs to realize that term policies costs less. A lower premium means families can afford to purchase more coverage or save money for other uses. Savings could be used to pay bills, reduce debt, or fund investment accounts. And ultimately, less debt and more savings will lower your need for comprehensive life insurance coverage.

Term policies also expire, and they usually have no cash value after the policy ends. If a family’s breadwinner buys a 20 year term policy at 35, he may find himself without coverage at 55. The problem is that rates will be higher for any particular type of coverage at 55 than they were at 35. You should also consider the risk of developing medical issues that make the family breadwinner harder to insure.

On the other hand, many insurers court the over 50 crowd, and some insurers offer 10 year term policies to reasonably healthy people in their 70’s. You can also find term policies that offer an option to convert them to permanent coverage before the expiration date, and this might be a good way to hedge bets.

Consider Your Employer Coverage Options First

If your employer offers group life insurance, it can be a simple and convenient choice. That said, some employees opt to purchase individual policies because coverage does not depend upon employment with a particular company. Others buy their own policies because their employer does not offer enough coverage for their needs.

Group and Employer-Sponsored Coverage

Since many Americans rely on employee-sponsored life insurance, make sure you understand your choices. An employer-sponsored group policy is not exactly the same as voluntary benefits that might be offered at your place of work. This might be confusing because premiums for both types of employer-based policies get taken out of paychecks. Here’s how to tell the difference:

• Employers do not pay any of the premiums for voluntary worksite plans. They might offer to take premiums out of paychecks, and in some cases this might be done out of pre-tax earnings.
• Insurers underwrite an entire company when they offer group life insurance policies. In other words, employees usually just sign up without answering health questions.
• Insurers can underwrite each applicant when they offer voluntary worksite benefits. Employees might answer health questions, and some employees could be declined or charged more based upon their answers.
• Most of the time, group coverage gets terminated when employment ends. Some voluntary benefit companies allow ex-employees to keep their coverage if they keep paying the premium.