Which Kind of Life Insurance is the Right Kind For Me?

The first item of importance is to figure out your budget and then figure out the amount of life insurance coverage you might need, because your budget might be a big determining factor. The kind of plan you get may have to do with the kind of plan you can afford. But keep in mind that what you "feel" you can afford might differ from what you actually can afford. Sometimes it's a matter of priorities. If it comes down to it, would you rather have a higher quality life insurance policy that locks in long term guarantees and gives you and your family peace of mind, or would you rather have a cheaper plan with less guarantees and then spend the difference on cable TV, which gives your family "piece" of mind?

After figuring out your budget and prioritizing it to see if any changes can be made to find extra money for your life insurance and otherwise figuring out what you can afford; and after figuring out how much life insurance you need (see "How Much Life Insurance Do I Need?"); the next step is to ask yourself a series of questions, beginning with the end in mind. In other words, what is the ultimate purpose for this life insurance?

If the sole purpose for your life insurance policy is to cover a limited period need such as to pay off your 30-year mortgage, then ask yourself, "If I don't die during those 30 years, would I like some money back from my policy at the end of those 30 years? (It costs extra to get money back.) Or, would I just like to get a simple 30-year term life insurance policy with no cash value?" If you want cash back then you may want an appropriately designed universal life insurance policy. If you don't want cash back then you definitely would want a term life insurance policy.

If the sole purpose for your life insurance policy is to cover a permanent need such as paying the expenses that dying itself creates (such as funeral, burial and taxes), and you have determined that you can afford a permanent policy, then that is the kind of policy you would want. Whether you choose universal life insurance or whole life insurance as your permanent policy would depend on the guarantees you want, your budget, and what specific features the policies you look at have that will give you the benefits you want.

If your objective is to have your life insurance serve many purposes, or your budget dictates it, you may want a combination plan. A combination plan would consist of term life insurance and permanent life insurance (either whole life or universal life).

The term life insurance portion could be used to cover limited period needs such as a mortgage or the extra money needed if you die during the years the children are being raised. The permanent life insurance portion could be to cover the potential permanent needs such as funeral, burial, and taxes, that never will go away until you die.

If the time and need passes for which the term life insurance portion was obtained, and you are still alive, then you could terminate that portion of your policy and you could still keep the permanent life insurance portion going to continue the coverage for your permanent needs!