Choosing the Right Life Insurance Policy
Now that you are a parent, you may want to think about purchasing a life insurance policy. After all, you want to make sure that your little one is cared for properly should something unexpected happen. The problem is, with so many types of life insurance policies available, how can you be sure to pick the right one?
Each type of policy offers its own benefits. The one you choose depends on what kind of flexibility you are looking for and whether you want your policy to have a cash value in case of an emergency. Here are some details on the three most popular types of life insurance:
Term Life Insurance
This is the most popular type of life insurance, likely because it is the most straightforward and least expensive. For an annual fee, you are covered for your insured amount for the length of the term that you choose. After the term expires you are no longer covered and you have to reapply for insurance, which of course will cost more because you are older. There is also the risk that you will be rated or uninsurable due to health issues once the term expires. Term life insurance has no cash value.
Whole Life Insurance
This type of policy covers you for life, and you have the security of knowing that your premiums are not going to go up. A whole life insurance policy also has a cash value, meaning that if somewhere down the road you need some money, you can withdraw from your policy. The money accrued in the policy can also be used as collateral for loans or mortgages.
The problem is that whole life insurance is expensive, about four to ten times more than term life insurance. Also, you likely don't need to be covered for life, as once your kids are grown up, you will have less of a need for life insurance, and you certainly don't want to be paying for it into your golden years. It can also be a difficult process to withdraw funds from a whole life policy.
Universal Life Insurance
Universal life insurance is a bit like whole life, except that you can determine the age at which you want the policy to end. You are also paying a higher amount into the policy than the actual premium. This amount accumulates in a separate account and can be drawn upon to pay the premium, or if you need some cash. This type of insurance also offers better tax advantages to the policy holder and the recipient of the death benefit.
There are many decisions you will have to make through the course of your little one's life, and one of those should be which type of life insurance will keep your family protected.