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Best type of life insurance

You’ve figured out how much life insurance you need. The next step is to figure out the best type. Fortunately, that’s actually pretty straightforward. But first, lets look at how to distinguish the types.

Doesn’t matter what type of life insurance you have, if it’s a $1,000,000 policy and you die, it pays out $1,000,000. Term, whole life, universal life, good, bad, ugly – none of this matters. It’s all the same cheque for $1,000,000. The point here is this – life insurance policy types are not primarily distinguished by the insurance coverage.

Instead, life insurance policies are best categorised by how long premiums are level for, and by extension how long you want to keep the policy for. Therefore the ‘best’ type for you will be a policy with premiums that are level for as long as you need the insurance for. If you need life insurance for 20 years, a 20 year term policy will be your best. If you need life insurance forever, then a permanent life insurance policy (whole life or universal life) will be more suitable.

Commonly people in their 20’s and 30’s with family needs will look at a term 30 or term to age 65 so that they’re covered until near retirement. People in their 40’s and early 50’s will often look a term 20, once again to line up close to the retirement timeframe. And people in their late 50’s with a small remaining mortgage may look at a term 10 policy to cover them just until the mortgage is fully paid off.

And people who are looking for lifetime coverage, burial and final expenses, would typically look at a small whole life policy.

You can also layer different coverages inside one policy. For example if you want $25,000 of life insurance to pay for burial expenses, but need $750,000 of insurance until the kids are out of the house then you can mix a whole life and a term 20 (by way of $25,000 base whole life, topped up with $725,000 of term 20). Layering term and whole life insurance like this is common in the industry.

Now that you’ve decided on the best type of insurance based on the term and know how much life insurance you need you’re ready to get a life insurance quote.