Understand the Life Insurance You're Getting

When considering life insurance, seasoned consumers and those with families typically want to make sure that the policy they select adequately takes care of their loved ones' necessities should something happen to them. In contrast, younger people generally don't think much about life insurance, often being too busy living and enjoying their lives to reflect upon the possibility that things could abruptly end. Needless to say, such shortsightedness could be wind up being a very costly mistake.

The earlier in life you purchase life insurance coverage, the more affordable it is. This is especially the case for consumers under the age of fifty. That's the general line beyond which the rates for coverage take an alarming jump into the higher realms. However, with all of the available types and options offered, the first time that you shop for a policy may become a little overwhelming. For that reason, let's break things down just a bit.

First and foremost, you'll have to decide whether you want permanent life insurance (also known as whole life insurance) or term life insurance (which, as the name implies, covers you only for a specified term or period of time). Term coverage can be purchased in many different term lengths; however, this also means that there's a chance for rates and coverage to change each time one of those terms comes up for renewal. Further, if you're considering a term policy, you'll also need to find out exactly what happens at renewal time. Is renewal of your coverage guaranteed, or will you be compelled to undergo a medical examination in order to be approved for another policy? The catch is that while you may be as healthy as a horse right now, a sudden downturn could mean that you're rejected the next time a renewal period comes around, thereby leaving you without insurance just when it might be needed most.

On the other hand, permanent life insurance policies do not have end dates. In other words, once you're in, you're in – but at a significantly higher cost than that of term coverage, and the reason is quite simple. In essence, a term life policy is a bet by the insurance company that you will not die during the period of the policy's coverage. It's only covering you for a specified time period, and often one for which they've made reasonably sure that you're at least healthy enough to stick around to see it end, while paying them your money. In other words (for the most part), as soon as the term ends on that policy, you're no longer covered. So, if you were to die literally an hour after the policy ends, there would be no payout forthcoming to your beneficiaries.

As such, the best option for many is to buy a whole-life policy. Once purchased, there are no changes or renewals. It will follow you through the rest of your life (as long as you make the necessary premium payments). Furthermore, whole life insurance offers you the ability to borrow against the policy's accumulated cash value. These features, however, also make whole life more expensive than term coverage. Be sure to consider the benefits and drawbacks of both when shopping for life insurance, and the impact they'll have on your budget.