What type of life insurance should I consider purchasing?

Choosing the right life insurance coverage

Choosing the right life insurance coverage requires an understanding of the financial and life position of the insured, what options are most important, and what insurance companies offer the best policies.

Individuals generally purchase life insurance for one of two reasons – to provide death benefits to beneficiaries or dependents upon the insured’s death, or as an investment, a type of savings account. To provide death benefit coverage, individuals can purchase one of two kinds of life insurance: term life insurance or whole, or permanent, insurance.

Term life insurance pays death benefits only if the insured dies during the term of the policy. This can be when the insured reaches a particular age, 65 years is a common end of term, or for a set number of years, not usually more than thirty. If the insured is still alive at the end of the term, coverage expires, although it can be renewed.

This type of insurance is convertible into a permanent policy, but does not built equity so cannot be used as a savings vehicle. This is the type of insurance most often available through group policies.

Whole, or permanent, life insurance pays death benefits whenever the insured dies – whether it is one day, one year, or one hundred years from the date purchased. This is also the best coverage for someone who wants to have a savings, as this type of insurance policy builds equity.

Premiums for permanent insurance are higher than for term policies, but remain the same throughout the life of the insurance, while term insurance premiums can increase every time the policy is renewed.