An affordable life insurance policy is one of those things everyone should have, but not everyone does. It is a form of insurance that pays out benefits to your family when you die. One of the biggest reasons to get life insurance is to help provide financial assistance to your loved ones to cover any medical bills, outstanding debt and burial expenses. Unfortunately, many people don’t even have an affordable life insurance policy because they don’t know what type to get and if they can find an affordable life insurance policy that fits in their budget. Let’s look at the different types of life insurance.

In a nutshell, term life insurance is basic life insurance while permanent life includes an element of investment. Term life insurance has a limited time of coverage and is usually the most affordable life insurance policy. The two major drawbacks of term life is that you can’t borrow against it (it doesn’t build a cash value) and once it expires you must obtain a new policy. So, while it is an affordable life insurance policy, it might not be the right choice for you!

Permanent life insurance tends to be a bit more expensive, but you can still find an affordable life insurance policy. Permanent life builds cash value, which means you can borrow against it if you need to. Additionally, you are covered for the rest of your life, provided that you make the premium payments, instead of a specific time period. There are four different types of permanent life insurance: whole, variable, universal life insurance and universal variable.

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It may seem very complex and time consuming when you start to buy a life policy. But if you understand some simple basics, it can really be a very simple and satisfying process. If you have purchased the right type of policy, in the right amount, you will feel secure because you have protected your family.

Which Type of Life Insurance Policy Should You Buy?

The first thing you probably need to do is to educate yourself about the different kinds of policies. It comes down, basically, to purchasing temporary or permanent policies. Learn about the three basic kinds of policies on the market.

Term Life – These policies are purchased for a period of time (term). The term may be a few years or a few decades, but the contract will still still expire at the end. In general, the term policy will have no value after it expires. There are some exceptions to this, but it is true in general. This is one reason why term life is cheaper.

Whole Life – This is a common permanent policy. You will be covered as long as the policy is paid for. The policy also may begin to build up a cash value that can be used as an asset. These are some reasons why whole life usually costs more.

Universal Life – This is another form of permanent policy. It is a little more complicated and flexible than other forms of life policies. It combines insurance with a savings or investment account. So it may be used as a policy, but also as a way to build an asset to be used for some long term goal like funding retirement or an education.

Once you understand the basics of the different kinds of policies, it is easier to decide which one you should buy. If you are mostly interested in providing security to a family with pure insurance, term may be your best option. Because it costs less, you will be able to buy more coverage! But if you are concerned about the long term, and of having a death benefit to leave to your beneficiaries, you may want to consider a permanent policy.

Should You Keep Your Options Open?

Sometimes, the best choice is to keep your options open. You can buy term policies with an option to convert to permanent life later. These will not require you to go through health underwriting again. So for example, let us say a 40 year old man purchases a 30 year term policy with an option to convert. Before the end of the term, let us say when he is 68, he can decide to convert the policy to whole life. Since we do not know what our health will be like in 30 years, this may be a good option!

Another tactic may be to buy a larger term policy and a smaller whole life policy when we are still fairly young and healthy. That way, we will have the most coverage when the kids are young or we have a large home loan to worry about. Later, when we have less of a need for coverage, we can still have a smaller whole life insurance policy for our retirement years. The premiums will be lower, or we may even buy a policy we can pay off, since we purchased it at a younger age!