Shopping for life insurance doesn’t have a one-size-fits-all approach. You’ll need to carefully consider a few factors to determine what type of life insurance is best for you, such as:
- Cost: Term insurance policies tend to be the most affordable life insurance option, but coverage expires after a period of time. Permanent life insurance coverage lasts until you pass away, but costs are often much higher than term coverage.
- Cash value: Do you want to use your life insurance as additional savings? Permanent life insurance builds cash value that you can borrow against, use for premiums and to build tax-deferred wealth.
- Adjustability: Some policies, like universal life coverage, give you the ability to adjust your coverage or premiums throughout the life of your policy. This could be an important factor if you want the flexibility to change your policy based on your current needs.
- Customization: Many types of life insurance policies have riders, or endorsements, that let you customize your policy to fit your needs. For example, adding a conversion rider to a term policy lets you convert the policy to permanent life insurance at its expiration.
- Medical history: People with serious medical conditions may want to look for life insurance with no medical exam. Young, healthy people, on the other hand, may want to go through medical underwriting to get the best price on a policy.
- Coverage needs: Do you want coverage just for your final expenses or to pay off your mortgage? Or are you looking for a death benefit that will protect your loved ones’ financial interests for years after your death? Consider your life insurance goals when choosing between types of life insurance.
- Earning potential: Some permanent insurance policies, like burial coverage, only earn marginal rates of return on cash value. If you’re looking to maximize your cash value earnings, you may want to consider variable life insurance or permanent policies with high fixed rates of return.
- Length of coverage: Examining how long you need life insurance coverage can help you choose between term and permanent life insurance policies. For example, if you have a major debt you want to cover with life insurance, such as your mortgage or student loans, a term policy might make sense. After paying off your debt, coverage may not be as important.
- Complexity of coverage: Are you looking for “set it and forget it” coverage? A term or whole life policy could be the right fit. These policies don’t require active management. However, a universal life policy or variable life policy might be a better fit if you want to be involved in managing your policies — and potentially increasing the benefits of the policy.
For many life insurance shoppers, the cost, length of coverage and coverage amount are the three most important factors when choosing a policy. As you start to compare types of life insurance policies, think about your life insurance goals and what policy features you’ll need to achieve those goals.
It’s also a good idea to get multiple life insurance quotes from different insurance companies. Cross-shopping life insurance policies will help you get the best combination of affordability and coverage.
