The Key 3 Questions To Ask Yourself When Buying Life Insurance

Important Considerations for Evaluating Life Insurance Options

Do you ever worry about how your family would cope if you were gone? If you’re under 40, you probably don’t think about it much. Few of us did in our younger days.

You might have thought about term or whole life insurance, but when you’re young, “later” always seems like the best policy. After all, nothing’s going to happen to you now because you’re young and immortal. Ah, the beautiful, blissful ignorance of youth.

The Questions to Ask

Now that you’ve made peace with your own mortality, it’s time to start researching life insurance policies. Succinctly, the three questions are “What?,” When?,” and “How much?” As far as the “what” is concerned, there are four kinds of life insurance policies available:

• Whole life insurance
• Variable life insurance
• Universal life insurance
• Term insurance

What Kind Do You Choose?

Whole life insurance is the most expensive of the four, largely because it never “runs out.” The good news is that your premium can never increase, so there are no unpleasant surprises down the road. You can also invest any cash value that you have accumulated as part of your premium payments.

Variable life insurance is similar to whole life insurance, but its rates are (as the name implies) variable. The variance relates to the amount of cash value you want to build in the policy. There are usually many options from which you can choose based on how much you want to save, how much you want to pay per month, and whether you want the accumulated cash to be added to your death benefit, treated as a direct investment, or taken out as cash income.

Universal life insurance offers the buyer the best of both worlds. The cash accumulation can be set at a constant or variable rate. Companies may control the number of times you can change back and forth based on your premium and the type of universal coverage you select.

Term insurance has no cash value and stops after a set number of years. The company you work for might provide you access to a certain kind of term policy as part of their group life insurance coverage. The term usually lasts until you quit or get termed. In essence, the policy starts when you become “dead to the company.”

When Should You Get Life Insurance?

How old should you be to buy life insurance? If you’re married and have children, the answer is now. Even if you just turned 20 and are still waiting for your high school acne to clear up (don’t worry, it will disappear any day now), you’re just as susceptible to accidents, disease, and other misfortunes as someone three times your age. You’re going to want to provide for your family just in case.

If you’re single and have no dependents, you might not need life insurance just yet, but it never hurts to plan ahead.

But which kind of policy should you get? The general rule of thumb is to buy term insurance when you’re young and whole life insurance when you’re older. Unfortunately, there’s no one-size-fits-all insurance policy.

Many things will affect your decision, such as your financial situation, your investment portfolio, your medical history, your driving record, and the needs of your family members.

How Much?

While term insurance can be inexpensive, whole life insurance can be a substantial investment. The other kinds of insurance fall somewhere in the middle. As a hypothetical example, a 30-year-old, non-smoking male in good physical shape might be able to find a substantial term insurance policy for about $30-$50 monthly. Someone buying whole life insurance might expect to pay about 10 times that much.

Young people love the low price of term insurance policies, and savvy buyers usually purchase a term length that coincides with the departure of the children from the household. At that point, they may decide on any of the other policy types. Whole life insurance becomes much more attractive because people at that age have often paid off their mortgage expenses.

Now that you understand which questions to consider, you can start comparing your options for life insurance and find the policy that works for you.