Life insurance gives your loved ones a financial cushion when you die. The younger you are, the less a policy will cost you, and it makes a lot of sense to have one in place if others depend on your income. Even if you’re in your fifties or sixties, it’s not too late to purchase life insurance. Your age and your goals can affect what kind of policy is best for you.
Term Life Insurance
Term life insurance has a finite lifespan unless you renew it at the end of the coverage period. If you’re 35 and you want to make sure your children go to college or otherwise get a head start in life if something should happen to you, this type of policy might be just the ticket. You can purchase a 20-year or 30-year term, and if your kids have graduated and become financially independent by then, you may have no further need for insurance by the time the policy expires.
Kiplinger says this type of policy is the best value for your money. The downside is that after you pay premiums for the length of the term, you have nothing to show for it when your policy expires. You’re simply protecting your loved ones against the possibility that you’ll die during that time. If you don’t, the insurer keeps your money.
Whole Life Insurance
Whole life insurance offers both a death benefit and an investment vehicle. Premiums are higher because the insurer invests a percentage of your payments. These policies may be called universal or variable, depending on the kinds of investments the insurer offers. Universal life typically is tied to an investment vehicle like a money market fund, whereas variable policies invest in bonds, stocks or mutual funds. These policies might suit you if you’re not particularly investment-savvy or you don’t have the nerves of steel that some riskier investments require. Your insurer takes care of the investment details and decisions for you and the cash value of your policy grows over the years without your involvement. You can take out the cash value at any time and you won’t have to pay taxes on the money up to the amount of the premiums you’ve paid over the years. You can borrow against the cash value, too.
But CNN Money recommends funding your investments and life insurance separately. You might purchase term insurance instead and put the money you save on premiums into mutual funds or another reasonably safe investment vehicle.
Guaranteed Life Insurance
Guaranteed life insurance sometimes is favored by seniors because it’s a sure deal. You can’t be turned down because you’re elderly or in poor health. The flip side is that if you die within two years of purchasing the policy, you may not have much to show for your investment. A lot of these policies will only return your premiums to your beneficiary during this time, nothing more. This insurance is expensive and the death benefits typically are limited.
All mortgage insurance does is pay off your home loan if you should die. This might sound like a good deal if you want to make sure your spouse and children have a roof over their heads, but you can’t choose your beneficiary with this type of policy -- the beneficiary is your lender. Insurance companies generally don't offer these policies directly. Instead, they’re provided by mortgage companies who want to protect themselves. Premiums typically are included in your mortgage payments, which means you pay interest on them. If your mortgage is a concern, you might be better off including the balance in term or whole life coverage instead.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.