Kind
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| Kind of Insurance in the United States
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| Which Kind?
Choosing between term and cash value is the next step in the process of purchasing life insurance. As it happens, term life is simply the better choice for the majority of people. Term plans are significantly cheaper; cash value plans can be 5 to 10 times as expensive. They are also simpler, and this simplicity provides an added value in that comparison shopping can be based on quality of insurer and price since most term policies from different insurers will be very similar. Additionally, when you no longer require insurance because you no longer have dependents, term life coverage is easily dropped.
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| Term length is an important consideration. Under normal circumstances premiums will increase over the course of the term as you age. However, you may take the option to pay a bit more in the early years of the term and get a level-term policy. Here, the cost of the policy is spread evenly over the course of the term. Longer term policies often carry a lower premium because you are agreeing to lock yourself into the insurer for a longer period of time. Shorter term policies provide you with the flexibility to reduce your death benefit (and, accordingly, your premium) when the term expires.
The most important characteristic to include in your term life policy is renewability without a medical exam. Although it will raise premiums in the short-term, your ability to continue to get term life insurance as you age or your health declines depends upon the renewability of your contract. Some term life policies are convertible, meaning that they can be made into cash value policies with the same insurer at the discretion of the holder if that option becomes financially favorable. Often, however, the tax advantages offered by cash value policies can be more easily capitalized on in retirement plans.
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| Cash value policies must be held for life if they are to be a successful investment. The setup and initial fees make allowing the policy to lapse or closing the account very unfavorable financially. Cash value policies can be a good option for people who are concerned about getting coverage late in life or for people who are interested in a forced incentive to save for retirement or their estate. Once you reach a certain age, insurance companies may no longer provide you with term life insurance. If you think you will still need insurance at that age (many people do not), permanent life may be a consideration for you. One problem with cash value policies is that the substantially higher premiums often cause people to purchase a policy that is too small for their needs, leaving them underinsured.
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