Most individual in society still view life insurance as a stand alone purchase. Your first step is to realize life insurance is one brick in building your financial house. This infers that you have at least an mental outline of your financial goals. The second step is to determine your expectations from the insurance product; just life insurance or life insurance and asset value. Third, you need to understand the roll your age plays in insurance pricing and asset growth. The rule is the young the insured is, the lower the monthly cost will be no matter which type of insurance you purchase.
There are three types of life insurance product sold today. The three are Term life, Cash value and Hybrid. Term life is currently the most popular product, term life is a straight forward insurance stated the amount of the benefit (paid out)and the monthly payment. Term life is usually sold in ten year contacts base on your age. As an example at age 25, $100,000 of coverage is $99, but at age 41, $100,000 of coverage is $199. Term life builds no equity (cash value)and hence can not be borrow against. The advantage to Term Life is that is is lower cost then cash value life. Most life insurance offered as a work place benefit is term life.
Cash value life insurance (whole life) is the older traditional product your parent owned. Like term life, whole life is priced base on age and amount, but does build equity(cash value). After a period of time and according to a policy schedule the you can “cash in” the policy or borrow against the equity value of the policy. The equity you build will be considered as an asset for loans, divorces and other court cases. Cash value life has the dual benefit of offering both the peace of mind of life insurance and a reservoir of money for a rainy day.
Hybrid life insurance is combo of a term life policy and an investments portfolio used to produce the same effect as a cash value policy. This is a newer spin on life insurance. The goal of this product is to offer both life insurance and a 401K retirement account. The 401K account builds “cash value” through investment in mutual funds. Hybrid products are usually lower cost then cash value policies, but high cost then term life.
To determine which type is better for your ask yourself two simple questions, “Am I willing to actively manage my financial house?” and “Is cost an overriding factor in my decision ?”. If cost is the major factor in your equation or you already have a 401K, buy as much term life insurance as your budget allows. Term life is sold in multiple of $5,000 and rates vary by insurance company. If you want to just buy life insurance and forget about it, buy a hybrid if it is available or whole life. To be more hands on, buy term life and open your own 401k account with a major mutual fund.
There are a few stop signs in buying life insurance, some company may require a physical, a AIDS test or a health questionnaire. The questions of health will depend on the state you live in, your age and the amount of the policy you are buying.