YOU ASK:

What are the best types of life insurance policies?

WE ANSWER:

The best type of life insurance policy is the one that best suits your individual financial needs and objectives. Therefore, as a rule of thumb, you need to shop around to find the type of life insurance policy that is right for you.

Types of Life Insurance Policies

There are two basic types of life insurance policies:

Permanent Life Insurance

Permanent life insurance, also called cash-value life insurance, provides protection for your whole life. It is best suited for people who have permanent insurance needs, such as providing your partner with money, paying estate-tax bills or taking care of a special needs child. Financial planning professionals usually recommend that you opt for permanent life insurance only if you need it for a minimum of 30 years. Cash value policy is the only type of life insurance that guarantees long-term protection that will last until the rest of our life, regardless of how long you live.

Permanent life insurance has one major advantage: it contains a cash value element which accumulates on a yearly basis and belongs to the policy owner. If left to build up for 20 or 30 years, it can grow into a substantial sum which can then be used for different purposes. However, here is a caveat: you shouldn't purchase cash value life insurance only for investment! There are better ways to save money and permanent life insurance premiums are usually quite higher than term policy premiums.

Term Life Insurance

Term life insurance is the perfect solution for those who need short-term coverage at a lower price. If, for example, you are young and have a family, a 20-year mortgage and a car, a term life policy is the best type of life insurance for you. Once your children grow up and you have paid off your debts, you might not need life insurance anymore.

The major advantage of term life policies is that they are the most affordable type of life insurance. However, term life policy premiums increase on a yearly basis as you age, and the cost of renewing a policy of this type can be rather prohibitive if your health deteriorates or you reach a certain age. Another disadvantage of term life insurance is that it only pays benefits if the insured dies within the period the policy is in force. All these shortcomings, however, are offset by the greater flexibility of term life insurance, compared to permanent life insurance. For example, most insurers allow you to convert your term policy into a permanent policy at any time without proof of insurability.

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