Life insurance can be a confusing topic. There are several different types (many of which I have written about). But there is still a question that bugs a lot of people: What kind of insurance policy do I need? Let’s get into it.
Nearly Always Term Insurance
This is the answer to about 90-95% of people and situations out there. What type of life insurance do I need? The vast majority of people need term insurance.
Why? Because life insurance is not an investment. An insurance policy is simply a way to shift the risk of your untimely death to an insurance company in exchange for a monthly premium.
The idea behind term insurance is that while the term is ongoing you should be building investments, paying down your home, and generally moving to a better financial position. That way, in the event of your death, your family and loved ones can rely on the money that you have accumulated instead of the life insurance policy.
And BTW, term insurance is about 20x cheaper than permanent life insurance. Seriously.
It’s really that simple.
A lot of people like to overcomplicate finances and money, but you really don’t have to overcomplicate things to be successful.
Cases Where You Might Need Something OTHER Than Term Insurance
Before I get into the details, just know that the number of people that need permanent life insurance instead of term is very low.
In my career, I have really only seen two scenarios where someone needed permanent insurance policy instead of term.
- If their health was poor and they could not get medically cleared for term insurance. Sometimes this happens. Different insurance carriers will be okay with taking on the risks of different health conditions. And in my experience, whole insurance policies are a little more lax with this.
- If someone’s portfolio is so high that they can financially gain from the tax benefits of having a whole life insurance. I have only seen this two times in my career. If you have all of your retirement buckets maxed out, have an enormous net worth, and do not want to invest in alternative assets like real estate, startups, cryptocurrency, etc. then a whole life insurance policy might be an okay move. But remember, this is rare.
Just talk to a financial advisor or CPA (not just an insurance agent) and they can walk you through the tax benefits/drawbacks of having a whole life insurance policy.
And just so we’re clear. I have never seen a situation in my career where an indexed universal life insurance policy is a good move. There are simply too many hooks in these policies and too many drawbacks for the rate of return that is given.
A little bit of a hot take, I know.
Final Thoughts
Short and sweet.
If you need life insurance, term is nearly always the way to go. It costs less money and tt shifts the risk of your mortality to the insurance company while you get your financial house in order and built.
You can do this!
I am here for you!
Until next time!
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