The Best Types of Life Insurance for 4 Life Stages | Credit Karma
Life insurance may not be the most exciting investment to consider, but its benefits can be profound.
In the long term, a good life insurance policy can provide financial security for your family if you can no longer care for them. and in the short term, it can offer great peace of mind. Buying life insurance is an important decision, so it pays to do some research to find the best types of life insurance and the specific policies that make the most sense for you.
The two most common types of life insurance are term life insurance and whole life insurance, and they differ in several key ways.
term life insurance
Term life insurance is usually the cheaper of the two. With a typical term life insurance policy, your family receives a payment if you die during the specified coverage period (or “term”). They could use this money to cover expenses such as funeral costs and any outstanding debt. A term policy can provide life insurance for five, 10, or 20 years. it could also end once you reach a specific age.
The downside is that you personally will never see a penny of that money, and if you survive the term of the policy, neither will your loved ones. Another thing to consider is that the cost of a term policy increases as you age, something that could tip the scales and make it a worse long-term proposition than a whole life insurance policy. speaking of which…
whole life insurance
Whole life insurance (also known as permanent, normal or ordinary life insurance) is a common type of cash value insurance. We’ll go over some less common types at the end of this article, but for now let’s focus on how whole life insurance works.
As the name implies, whole life insurance provides coverage for your entire life rather than a specific term with an end date. That’s one of the reasons a whole life policy can be so much more expensive than a term life policy. But those higher premiums also come with an added benefit: They build up cash value that can help pay for future policy years, and you can borrow if you need to.
and you can’t outlive your entire life policy. As long as you make your payments and abide by the policy agreement, your whole life policy is with you for the rest of your life. It’s worth noting that some whole life policies require premiums to be paid over your lifetime, while others only require premiums for a number of years.
Now that we’ve defined the most common types of life insurance, let’s take a look at the best life insurance options for various life stages. While the best life insurance policy for you may depend on a number of personal factors that we can’t consider here, this list should point you in the right direction.
The best types of life insurance for 4 stages of life
- Best for Single Adults on a Budget: Term Life Insurance
- Best for Young Families: Whole Life Insurance
- The best thing to invest in your child’s future: whole life insurance
- Best for Seniors: Guaranteed Issue Life Insurance
- Variable life insurance: This type of life insurance has a death benefit that is tied to the performance of certain investment assets. the value of the death benefit varies based on the performance of those assets, which could mean a higher or lower payment depending on interest, timing, investment performance, and other factors.
- Universal Life Insurance: If flexibility is what you’re looking for, a universal life insurance policy might make sense. this type of policy may allow you to vary the amount of your premium payments or even skip certain payments. the death benefit is also adjustable and will build cash value from a combination of premium and interest payments.
- variable universal life insurance: as its name indicates, it is a combination of the previous types. it is “variable” in the sense that its value is also tied to certain investments, and “universal” in the sense that it allows some additional flexibility.
Best for Single Adults on a Budget: Term Life Insurance
You are young and single. So why do you need life insurance?
As a single adult living alone with no one to support you, buying a life insurance policy can seem counterintuitive. After all, who will the death benefit go to? your dog?
Some financial experts argue that it doesn’t make sense to buy life insurance when you’re young and have no one to support. while that may be true for many, it overlooks some important facts.
Even if a potential beneficiary isn’t relying on you for financial support now, that person could use the money to cover the cost of your funeral, which is effectively an expense to you. And funeral costs aren’t the only thing to consider.
Let’s say your parents co-signed your private student loans. they may be hard-pressed for any amounts left unpaid in the event of your death. You might consider taking out a life insurance policy large enough to pay off those loans so Mom and Dad aren’t stuck with your debt while mourning your loss.
Ultimately, it’s a personal decision that only you can make, but there are definitely things to consider when deciding if a term life policy is right for you. and instead of leaving your benefits to fido, you might consider naming your partner or next of kin, a parent, brother or sister, or anyone else to assume responsibility for your funeral expenses or meet any other financial responsibilities for you. you. as beneficiary.
insurance provider to consider: your employer’s plan (if available)
If you’re looking for affordable life insurance, start by checking with your employer rather than an independent insurance agent. Many companies offer a term life insurance benefit for free or at a discounted rate as part of a benefits package. If yours doesn’t, consider getting a life insurance quote from several life insurance providers to find a policy that works with your budget and provides your loved ones with a degree of financial security.
best for young families: whole life insurance
If you want to support your family while investing in your future, a whole life insurance policy might be a good option to consider.
As we’ve noted, permanent life insurance has its pros and cons. It’s typically more expensive than term life insurance because, in addition to the death benefit, your policy builds cash value over time, against which you can borrow. that can be a useful benefit as your family grows.
And as its name implies, permanent life insurance stays with you for your entire life, or at least as long as you continue to make payments on time and comply with the terms and conditions of the policy. So once you’ve established your policy, you’ll be covered while your family is young, and you can rely on your policy to see you through your later years.
insurance company to consider: massmutual
If you can’t imagine making payments for the rest of your life, massmutual offers a 10-year legacy payment for life that allows you to make payments for 10 years. after that, you can stop paying, and instead of canceling the policy, the cash value will continue to increase.
the best thing to invest in your child’s future: whole life insurance
If you’re a new parent, you may want to consider purchasing a children’s insurance policy that your child can take advantage of later. and while this is a form of whole life insurance that covers children in the event of their death, the main reason we looked at it is for the benefits your child might see later in life, when you’re ready to pay college or buying your first home.
With the rising cost of college, your child may appreciate being able to borrow money against the cash value of a life insurance policy to help pay for their education. Your child could also take advantage of the insurance policy to help make a down payment on a first home or to pay for a financial emergency.
Hopefully, you’ll never need to take advantage of the death benefit. We understand that no amount of money will compensate for the loss of a child. But a life insurance policy for a child could be an investment in your child’s future, while providing you with the knowledge that if tragedy strikes, the coverage can help.
insurance company to consider: gerber life insurance
If you’re interested in getting whole life insurance for your kids, check out the Gerber Life Adult Plan from Gerber Life Insurance. As a children’s insurance policy, it does more than just protect you as a parent if the unthinkable happens. it’s also a way to build cash value against which your child can borrow money later in life.
Best for Seniors: Guaranteed Issue Life Insurance
If your children are long gone, you may not feel the need to pay for an expensive life insurance policy. but it may still be worth considering taking out a small policy to help your family pay for your funeral expenses.
If you’re concerned that old age or poor health could lead to coverage being denied, you can look into what’s known as a “guaranteed issue” life insurance policy, which doesn’t require a medical exam. a potential drawback? you may be charged higher premiums.
As the name implies, you won’t be denied a guaranteed issue life insurance policy because of your age or poor health. Unfortunately, these policies tend to have higher premiums, making them a last resort for many people.
insurance company to consider: aaa
aaa offers one of the best guaranteed issue life insurance policies we could find. it does not require a medical exam, and the death benefit can be as high as $25,000. You can apply for the policy as long as you are between 45 and 85 years old.
Unfortunately, if you die within two years of signing the policy, your family will not receive the full death benefit. but the good thing about aaa is that your loved ones will receive 30% more than all the premiums you paid on the policy. this is up to three times more than some of the other insurance policies we evaluate.
how we choose the best types of life insurance for each stage of life
We start by considering the different needs that people may have at different stages of life.
If you’re a single adult, you may have less of a need for a top-of-the-line life insurance policy with high premiums and high payouts. conversely, if you have young children, you may want a policy that keeps the door open for you to invest in their future.
We can’t consider every factor that may influence your decision, but we do try to consider life insurance policies that generally meet the needs of people at these important stages of life.
other types of life insurance to consider
While term life insurance and whole life insurance are some of the most common types of life insurance you’ll come across, they’re not the only options available.
As we noted earlier, whole life insurance is a type of cash value insurance, combining a death benefit with the ability to accumulate cash over time. Here are some other types of cash value insurance to consider.
a note on financial strength
When choosing between different life insurance policies, it is important to pay attention to the financial strength of the different insurance companies.
what do we mean by “financial strength”?
financial rating agencies, such as a.m. best, assign what is called a financial strength rating to various insurance companies. This rating measures a company’s ability to meet its ongoing contractual and insurance policy obligations. In other words, it should give you a decent idea of whether a company will be able to honor your claim payment.
You might consider comparing the fsr ratings of several insurance companies before deciding on a policy. you can start by searching for a specific company on the a.m. best and reading their financial strength rating guide. Please note that you will need to register to access the rating content.
how to get the most out of a life insurance policy
We realize that life insurance may not be right for everyone.
It’s certainly worth considering purchasing a term life insurance policy if your loved ones depend on your income or would be responsible for paying your debts. But whether whole life insurance (or another type of cash value insurance) is a good investment is up for debate, and it’s probably something you should discuss with your financial advisor and an insurance professional.
What’s most important when it comes to deciding on an insurance policy is finding a plan that makes you feel financially secure.