Life Insurance. It’s been described as a final gift you leave to the most important people in your world. The coverage you buy today will protect the people you love long after you are gone. More than a death benefit, depending on the coverage you choose, your life insurance could protect you while you are still living, and be a vital part of your retirement plan.
With so many coverage options, how do you choose the policy that is right for you? We have outlined some of the most common considerations people use when choosing a policy.
Do You Really Need Life Insurance?
Every situation is different. Generally, you should purchase life insurance if you have dependents, or are responsible for primary care of your loved ones. If your family depends on you, you can protect your family’s future with life insurance that will provide financial security after you are gone.
You should also consider purchasing life insurance if you have outstanding debts (like a mortgage) that would go to a co-signer or spouse. If you own and operate a business, life insurance could provide an immediate cash payout, which would assist while transitioning business accounts. Many people also consider leaving a portion of their life insurance to a favorite cause or charity. Life insurance can be instrumental in providing financial support to the things most important to you and your family.
How Much Life Insurance Do You Need?
Many factors contribute to how much life insurance is appropriate for you and your family. Consider how many dependents you have, what their future education expenses might be, how much outstanding debt you have, and your current lifestyle.
In general, many people look to buy a policy that is worth five to ten times their annual salary. Does that sound like a lot? Consult with your Farm Bureau agent to ensure you have the right level of coverage for the needs of your family.
Types of Life Insurance Policies
Each type of life insurance has some unique characteristics, and knowing about what makes them different will help as you decide on the best option for you.
- Term Life – Term life is generally the most affordable life insurance option. As the name implies, the insurance is good for a specific period (usually 10, 20, or 30 years). The term life policy does not gain cash value and cannot be used as an asset. Many term life options have an option to convert to a permanent policy. Check out our new Term product – Increasing Term. This policy gives you the ability to obtain coverage now, but also secure more coverage in the future. With Increasing Term, you’ll be allowed to increase coverage up to double the face value of your policy over the first five years without having to go through the underwriting process again.
- Whole Life – Whole life insurance, also called permanent insurance, offers lifetime coverage that does not expire, and builds cash value over time. Many whole life policies will allow the insured to borrow against the cash value of the policy during the life of the policy. Also, the death benefit is guaranteed and premiums remain steady.
- Universal Life – Universal Life is a form of permanent insurance, but generally offers greater flexibility than whole life policies. With a Universal Life policy, you are covered for life, and can adjust things like payments and death benefits (with certain limits) to meet your needs. Your policy accumulates value based on the premiums you make. You can borrow against this value (and benefit from it while you are still alive.)
How to Choose the Right Policy
With so many options, choosing the right life insurance policy can be confusing. Though nothing can replace advice from a trusted financial professional, we’ve compiled some common considerations from the Insurance Information Institute:
Consider term insurance if:
- You need a short term solution, and need insurance for a specific time period. For example, if you have young children and want to ensure they will be able to afford their education if you pass away, a term policy might be the ideal solution for your family.
- You have a limited budget, but need coverage. Term insurance is generally the most affordable form of life insurance, but still provides excellent coverage benefits if something happens during the policy term limit.
- You are looking to lock in your insurability while you are young. Many term policies include an option to convert to a permanent life policy without additional medical examinations when the coverage term nears its end.
Consider permanent insurance if:
- You need insurance for as long as you live. Because coverage remains steady over time, whole life policies allow the security of knowing you are covered.
- You are looking to invest in a product that grows and matures over time. Because you can build equity with permanent life policies, they can be considered an asset.
With so many options available, choosing the right insurance policy can be confusing. As you examine your options, be sure to consult with a trusted agent that can clarify the details of each type of policy and help you choose your best option based on your own personal situation. Your local Farm Bureau agent can help you navigate the best option for your situation.