What’s the best Life Insurance?
Hmmm…Kind of like asking “What’s the best car?” It all depends on what you need.
If you want to protect you family only during your working years, then a:
Term Policy works. It’s the least expensive and can provide a high enough benefit to provide for college, your mortgage and your lost income for instance. But beware of a couple of things…
Only 1-2% of policies actually pay out. Why? Because most people outlive their policy. If you do, all those premiums you paid in over the years go away once the term ends – unless you opt for a Return of Premium rider which can help refund most of your premium.
Company Paid Term - It can be enticing to have yoru company pay for your insurance. But what happens if you leave the company? Can you keep it and pay yourself?
Whole Life: Unlike Term, you’re insured for your whole life – if you keep the payments up. Or, you can design it so you stop paying in a a pre-determined age and stay insured. It does have cash account as part of it, so you’re paying for both the Insurance part and the cash part. The cash account works like a savings account but pays usually 3-5% compound interest. You can withdraw from your cash account or borrow against it. This is a nice feature, but it isn’t as effective for accumulating wealth for retirement as an IRA or 401k. There are many riders available for things like critical illnesses where you can collect the death benefit while you’re still alive.
Index Life: The full name is Index Universal Life. It’s a type of Whole Life where you have the death benefit with a cash account but instead of a steady interest rate, you would get Stock Market-Like interest on the cash account. I say Stock Market-Like because your cash account isn’t actually invested in any markets. Whatever stock index(s) you choose for the policy, it uses that interest rate for that year, and it can be a lot! That’s what Index refers to.
The best part is even if the stock market goes down in a particular year, your account doesn’t go down. Your account just earns $0 that year – no loss. Other years you may get 5%, 10%, 12% or more interest in other years. With most plans, you can pick out which fund you’d like to use as your index. You can choose aggressive, conservative or a mix in most cases.
Hybrid Life – maybe you’d like to combine a Life policy it with Long Term Care Insurance. That’s a popular option as well. There’s a pretty wide selection of configurations to investigate. I have plenty of articles here on Long Term Care Insurance.
So what’s best for you?