Life Insurance Options

Everybody like options. Whether buying a car, a house, or a lunch off of fast food menu, people need to be able to satisfy their own personal preferences and needs. The purchase of life insurance is no different, and, fortunately, there is a seemingly unlimited amount of choices available in the life insurance universe. Unfortunately, the options available with life insurance are a little more complicated and far-reaching than just choosing between hard top and soft top, or crispy taco and soft taco, which are just a matter of taste.

Life insurance comes in many flavors and there are a lot of toppings available, and it is definitely not one-size-fits-all. Unfortunately, we can’t just sample a taste or try it on for size.  It’s a major commitment that requires that we get it right the first time, or it can turn out to be an expensive and unsettling experience, so it’s important to be able to find the right match based on a throrough understanding of your own financial goals, needs, priorities, preferences and tolerance for risk.

Here we list the core life insurance options that are available along with the individual and financial characteristics for which they would be most suitable and best serve.

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Term Life Insurance

Term life insurance is most suited for people who have a short term need or a specific timeframe for which protection is needed. Because the premium costs are low, it is a good solution for people who need a large amount of coverage and who have current cash flow concerns.  For people who anticipate a continuing need for life insurance protection,  they risk the possibility that the term coverage could become very expensive, or they may become uninsurable in the future.

Whole Life Insurance

Some people are the type that like to “set it and then forget it”.  Peace of mind is a priority, and they prefer that their security needs are guaranteed.  Whole life insurance is permanent coverage best suited for people who realize that the need for life insurance is not likely to go away.  Their cash flow allows for a higher premium payment, a large portion of which becomes part of a cash value savings account that will be available to them for future needs.  The returns on whole life policy cash value are relatively low, however, they are predictable and guaranteed which are important to some people.

Universal Life Insurance

Some people like the idea of permanence and saftey in their life insurance plan, however, they may not like the rigidity of whole life, preferring instead to have some control and flexibility over their plan. Unviersal life policies are suitable for people seeking greater return potential, more control over the level of their premium payment, more access to their funds, and the flexibility to change the level of their coverage according to their needs.  For all of that, they must be able to assume some risk with the management of the policy. 

Variable Life Insurance

Some people are intent on making their money work harder for them in all aspects of their finances including their life insurance. They also understand that achieving higher returns on their money comes with a commensurate amount of risk. Variable life offers the opportunity for growth while providing permanent protection.  Policyholders can apply asset allocation strategies in creating a diversified mix of stocks and bonds to build a cash value account that can be accessed for future needs.  The risks of investing are mitigated through death benefit guarantees that are available in most variable life policies.

Mixing Options

To compete in a crowded marketplace, and to continue to attract more premium dollars, life insurers have become more innovative in their product offerings to appeal to a broader range of preferences and needs.  The options discusses here, term, whole life, universal life, and variable life, are now just the core options.  Product innovations have combined the features of these products to create a best-of-breed products.  For instance, the investment accounts of variable life policies have been combined with universal life policies to create a variable-universal life hybrid, offering upside investment potential along with the flexibility and control over premium payments, death benefits and withdrawals.

The Cost of Options

As with any type of product that offers options, the more bells and whistles it has, the more it will cost.  Term life is the stripped down version of life insurance, so it’s the least costly. Whole life adds lifetime guarantees and a  cash value account, so it will have higher expenses than term, and the cash value element requires a higher initial premium payment.  Universal life is often thought of as a term policy combined with a cash value account.  Premium payment are lower for universal life than whole life largely because it doesn’t have the same guarantees.  Variable life adds the investment element, so there is the additional cost of investment management fees. 

A general rule for life insurance pricing would be, the more guarantees, or the more flexibility, or the more potential for returns on your money, the more the options will cost. Determining which options will provide the best overall protection and benefits for the cost can only be done by each individual after a thorough assessment of their needs, preferences, priorities and tolerance for risk.

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