Which type of life insurance is best for me?
Day in and day out, you work hard to create a secure, enjoyable life for the people you love. Now it’s time to protect it all with life insurance.
Life insurance is simple enough: It pays a cash benefit to the beneficiary if the insured person dies while the policy is in force. But once you start researching your options, it can be difficult to know which type of life insurance is best for you. You need a policy that fits your needs and priorities, while also accommodating your budget and financial plan.
To help you make an informed decision, we’re going to share information on three common life insurance options—term life insurance, whole life insurance and universal life insurance. We hope this guide can help you decide which type of life insurance is best for you and your family.
1. Term life insurance
Many people who buy life insurance for the first time choose term life insurance because it is typically the most affordable.
Term life insurance pays a death benefit if the insured person dies during a specified period of time. A term policy’s specified period may be 15, 20, or 30 years, or to a specific age. The premium (what you pay each month or quarter for your policy) remains level, which means it stays the same for the entire period you choose.
When your life insurance term ends, so does your policy. However, many term policies will let you continue your coverage at higher premiums that increase annually to a certain age. Some term policies also let you convert to a permanent life insurance policy before the term ends, often without a new medical exam. Keep in mind that term life insurance doesn’t build cash value, so if you outlive your policy, there’s no payout or refund of premiums paid.
Term life insurance may be a great fit for you if:
- You need coverage for only a certain period of time, such as the length of your mortgage or until your kids are through college.
- Term life insurance’s affordable premiums are best for your budget.
2. Whole life insurance
The second type of life insurance is whole life insurance. Whole life insurance is a type of permanent life insurance, which means it covers you for your entire life. Like term life insurance, whole life insurance features level premiums that do not increase. However, you can count on those premiums probably being higher than if you selected a term policy. That’s why it’s smart to lock in your rates when you’re young and healthy, when your premiums will likely be lower. Because those premiums are higher, whole life insurance tends to work best for people who can commit to that cost for coverage that lasts a lifetime.
Whole life insurance is sometimes called cash value life insurance because of its ability to build guaranteed cash value, which grows tax-deferred over time. Once you accumulate a sizeable cash value, you can take loans from your policy for any purpose, including funding college, paying off debt or supplementing your retirement income. Oftentimes, cash value loans will feature lower interest rates than what you’d get from a bank or credit card.
Whole life insurance features a guaranteed death benefit that is typically income-tax-free. You can use this death benefit to help leave a lasting financial legacy for future generations.
Whole life insurance may be a great fit for you if:
- You want coverage for life and a guaranteed death benefit to leave a lasting legacy.
- You could benefit from a policy that features the ability to build cash value.
- Whole life insurance premiums fit your budget.
3. Universal life insurance
The third type of life insurance is universal life insurance. This is another type of permanent life insurance that covers you for your entire life. It also features a tax-free death benefit and the ability to build cash value. If you want the lifetime coverage of universal life insurance with less exposure to market swings, ask about guaranteed universal life insurance, which trades cash value growth potential for level, predictable premiums.
What makes universal life insurance unique is that it offers flexible premium options. You can choose to increase or decrease your premium payments based on how fast you want your cash value to grow, within limits. As long as your cash value is positive, your policy remains in force. The amount and timing of your premiums will affect your policy’s cash value.
Depending on which universal life insurance policy you choose, your policy may be linked to the performance of the S&P 500®, sometimes with protection from downward market trends. Other policies don’t protect you from downward markets, but also give you more potential for growth. Because performance can vary, universal life insurance takes more ongoing attention than a whole life policy to make sure the cash value stays strong enough to keep your coverage in force.
Besides flexible premiums, universal life insurance also offers a flexible death benefit. If you need less life insurance in the future, perhaps after your mortgage is paid off, you can ask the insurance company to reduce your coverage amount. If you need more, you can request a coverage increase, with evidence that your health hasn’t changed.
Universal life insurance may be a great fit for you if:
- You want coverage that can last your entire life, plus the option to adjust your death benefit.
- You want the chance to grow cash value tax-deferred, which you may be able to use for other financial goals.
- You want flexible premiums that you can control.
- You want a life insurance solution that aligns with your budget and long-term financial goals.
There’s no single best type of life insurance, only the one that’s best for your life and your budget. Term life insurance offers affordable, straightforward protection for a set number of years. Whole and universal life insurance offer lifelong coverage, with different trade-offs between guaranteed growth, flexibility, and cost. Whatever your priorities, a licensed insurance agent can walk you through your options and help you find a policy that protects the people who matter most.
We’re here to help
Still unsure which type of life insurance is best for you? No worries—our agents are here to help! Give us a call at (800) 525-7662, and we’ll pair you up with a local Washington National agent, who can help answer all your life insurance questions.
Insurers and their representatives are not permitted by law to offer tax or legal advice. The general and educational information here supports the sales, marketing or service of insurance policies. Based upon individuals’ particular circumstances and objectives, they should seek specific advice from their own qualified and duly-licensed independent tax or legal advisors