When you own a car, you’re required to get it insured. When you own a home, you have to get it insured. Your life, though? Most people, unfortunately, do not have adequate (or any) life insurance.
When it comes to planning your family’s long-term financial future, nothing works better than having a quality life insurance policy in place.
Think about it like this. Investor Warren Buffet poses a question to his students: if you could only choose one car for the rest of your life, how well would you take care of it?
He relays that single car to your body and your mind. Taking care of it should be our biggest priority since we only get one, but part of taking care of it is knowing that we’re taking care of our family members, even after we leave this life.
If you don’t already have a life insurance policy, especially if you don’t understand the different types of policies available, this guide should help. You’ll see a handful of different types of insurance and why they are a good choice.
Term life insurance is one of the most common (and affordable) types of insurance that you can purchase. The insurance has a single focus: paying a benefit to the people you choose, or your beneficiaries.
Term life policies exist for a set term — or length of time. The standard policy lasts for up to 30 years and the ends. This makes it great for younger people but, as you get older, the policy begins to climb in price and could be hard to renew at a certain age.
A permanent life insurance policy is more difficult to understand. These types of policies act as both life insurance and investment vehicles. They build cash value that you can borrow against if you have an emergency.
The longer you own a permanent life policy, the more cash value will build up. Permanent life insurance policies never expire so they’ll last until you pass away or stop paying for your premiums.
Whole life policies are similar to permanent policies, in that they last your entire life, but they do not act as an investment vehicle. When you get your policy you lock your rates in for the entire life of the policy. The premiums do not go up but the policies do build cash value.
The longer you own the policy, the more cash value you will build up. Because of this, you usually get more insurance for the premiums that you’re paying. This is also why a whole life insurance policy tends to cost more than a term life policy. And while you are still learning which life insurance policies to get, have a look at some of the most affordable car insurance for new driver as well.
A universal life policy is similar to a whole life insurance policy, in that it builds cash value that you can access, but it tends to get a bit more complicated. A universal life policy allows you to access the cash value to cover your cost of premiums.
However, using your cash value to cover your premiums dwindles the amount of value that you have in the policy. The guaranteed benefit that you will get is tied to the cash value you have built up.
This tends to make a universal life policy a bad idea unless you know that you’re going to have the money to cover your premiums, even after you retire. Many people get into universal life policies and do not realize that the policies will dwindle after they’re unable to pay the premiums.
That also means, though, that the premiums will be covered after you retire, as long as you have built cash value into the policy. These types of policies are typically managed through a financial planner because of their complexities.
Final expense insurance is designed to do exactly as the name implies — cover your final expenses, such as your funeral costs and the cost of burial. These policies are typically smaller, ranging from $5,000 to $30,000 in size, and are mostly whole life policies.
That means the rate you receive when you purchase the policy is the rate that you will pay over the life of the policy. These types of policies are best purchased when younger and healthier, and some do build cash value.
Depending on your age, your income, your health, and your financial planning strategy, one type of insurance may be better for you than another. Most people can use whole life policies to keep things simple. However, if you have an advanced financial planning strategy, a universal life policy may be a better solution for you.
As with all things finances, this is something that you will need to plan for and consider talking to a certified financial planner before making large decisions.