Choosing the right type of Life Insurance

Are you having trouble deciding which type of life insurance product is right for you? Term life insurance? Whole life insurance? Or universal life insurance?

A good decision is based upon many personal factors, including your age, your time horizon for coverage, and your particular risk profile.

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Early in life
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Whole life products offer guarantees on the premium, death benefit, and cash value. Dividends can accumulate into significant cash values over a long period of time. And the companies that manufacture this product are historically strong.

It makes sense to use this product as the basis for the conservative portion of your financial portfolio.

People in their twenties or thirties frequently purchase whole life, because they anticipate having a long period of time in which to accumulate cash values. Also, the lifetime guarantees are especially attractive at a young age.

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Later in life
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However, it is often the case that additional life insurance is needed later in life — for example, to cover a second mortgage, a business loan, or college funding for children and grandchildren.

What is the product of choice at that point?

At a later age, the shortened time horizon may make whole life less attractive, because there is apparently less time to accumulate a cash value. By the same token, the shortened time horizon translates into larger premiums because the insured has less time in which to pay for the same death benefit.

Perhaps more importantly, an emergent risk factor may eliminate whole life from the product selection altogether.  For example, the insured may have developed diabetes, hepatitis, or another serious illness.  Maybe he has taken on a dangerous hobby, such as scuba diving or mountain climbing.  Or career advancement may require travel to remote world-wide locations.

These factors probably give term insurance and universal life insurance an edge over whole life in pricing.