How to Choose the Right Life Insurance Plan

Life insurance is a contract between an insurance company and you, in which you agree to pay a premium in return for the insurer’s commitment to providing you coverage on your life. This essentially means that if you pass away, the insurance company will pay a death benefit to your beneficiary. 

Types of Life Insurance Plans

To decide on which policy you should choose, you should first know the types of policies that are currently available:

Term Life Insurance

As the name suggests, term insurance lasts for a specific period, typically, 10, 15, 20, or 30 years. Once the term duration is over, the coverage ends. You can renew/extend the policy but usually at a higher cost. Term life insurance is very popular as it offers coverage during the years your family needs it the most. The policy is also quite affordable. 

Permanent Life Insurance 

Permanent life insurance, unlike term insurance, lasts as long you live, provided you continue paying the premiums. These policies give you lifetime coverage and also offer a cash value component, which increases in value over time. This is why permanent life insurance is more expensive compared to term insurance. 

Whole Life insurance

Whole life insurance features a coverage amount and a constant level premium that will not change during the life of the policy. It also has the potential to accumulate cash value over time. You can borrow against this built-up cash value or surrender your policy and access it. 

Universal Life Insurance

This type of policy offers you flexible premium payment options that allow you to adjust the amount you pay as premium each year. It also accrues cash value over time.  

How Much Life Insurance Coverage Should You Get?

This depends on why you are purchasing the policy. If the goal is to financially secure your kids, make sure you opt for a sum that’s enough to fund their living expenses and college tuition. If you’re buying a policy because you have a home loan, get a sum that’s equal to the outstanding loan balance. 

The type of policy you choose should be decided based on factors like how many earning years do you have left, whether you intend to pay for your children’s education, how much debt you have, and your savings and investments.