Are you looking for life insurance cheap in price? You may have been told by countless people that term life insurance is the cheapest way to buy life insurance, but is it really? In this article I’m going to highlight 4 different types of life insurance you may not know about and show you which one is the cheapest and where to find them.
Term Life Insurance
Term life insurance is a type of life insurance that is bought with a specific death benefit and time period. For example, you could buy a $100,000 policy with a 30 year term. This means you’re beneficiary will receive $100,000 in the event of your death as long as you pass within the 30 year window.
Some benefits to term is that these types of policies will have cheaper premiums versus other types I’m going to discuss. In fact by looking at the picture below you can see how cheap a term policy can really be.
As you can see in the picture above I ran a quick quote on myself and found a 30 year term with a$100,000 worth of coverage for $14 a month. Things just don’t get cheaper than that. On top of that term also allows you to select the length of the policy as well. Typical term policies range from 5 years to as high as 30 years.
However their are disadvantages to this option as well. Just because the payment is low doesn’t mean it’s necessarily the best option around. First off, a term policy is a lot like paying rent on an apartment. You make monthly payments and once the moneys gone you won’t get it back. One way around this to look into a return of premium option were you can be re-payed a portion of the premiums back after the policy ends. To learn more about this option read my article on return of premium life insurance.
Another downside to this type of policy is that once a term policy ends you will have to renew your policy in order to continue the coverage. This means your rates could jump dramatically and the once cheap life insurance policy you had has now turned into your worse nightmare. Look below.
Above is a quote for the same $100,000 policy with a 30 year term but one difference. This quote is showing how much I could be paying after my previous 30 year term policy ended. As you can see my premiums have increased from $14 a month to over $109 a month. Ouch!
In the end a term policy is great for older people and those with impaired health risk or those that pursue high risk activities simply because term is going to give you the cheapest premium payment options. To learn more about how to purchase term check out my article on where to buy low cost term life insurance.
Whole Life Insurance
The next option is whole life insurance. This type of life insurance policy was meant for one thing and one thing only to offer life insurance protection for a persons whole life. Unlike a term life policy a whole life policy will never end. This means you will always have the protection of life insurance. The policies also uses cv what is know as a cash value account to offset the cost of insurance.
A few benefits to this option is that with a cash value account you can be constantly driving the cost of life insurance down. For example, if you have a $100,000 whole life policy and after 30 years of owning the policy you have accumulated $80,000 in the cash value you will only be really paying for $20,000 worth of coverage since the cash value contains the other $80,000.
This means you will be paying less for the cost of insurance and more toward building up you cash value. However just because you’re paying less towards your cash value doesn’t mean your premium payments will go down.
On the other hand their are also disadvantages as well. First off, a whole life will typically cost more than a term policy. Below is an quote for a typical whole life policy.
As you can see a typical whole life policy is going to run around $30 to $40 a month starting out versus paying $14 a month in the term example. A second disadvantage to whole life is that it’s not very flexible, meaning in order to keep the policy going you have to keep making the premium payments your entire life in order to keep it, and if you fail to keep making the payments the insurance company could lapse the policy and you could lose everything you’ve built up in the cash value account.
This type of policy makes a great fit for someone who is younger and has more time to build up the cash value account. This policy also makes a great fit for someone who wants a policy that has a fixed payment and will last as long as they live. If you would like to learn more about this option and where to buy read my article on Whole Life Insurance Explained.
Indexed And Universal Life
The next option you have is universal life and indexed universal life insurance. These two options are one in the same product. Universal life is a flexible life insurance policy, meaning the policy is more flexible when it comes to making things like premium payments.
For example, if you have $25,000 in your cash value account and you fail to make a payments on your policy it won’t lapse. Instead premium payments will be deducted from the cash value account to make the premium payments. In fact if you stop making premium payments altogether the policy will continue to make payments from the cash value until you the account is completely empty.
Another benefit to this option is that it will also use the cash value account to offset insurance cost as it does with whole life insurance as well. However their is one extra added benefit, with whole life insurance the cash value account will hold a fixed interest rate while the universal life policy will as well. However the universal policy will have one extra benefit and that is the ablity to invest in an indexed policy.
The indexed option with universal life allows you to invest your money in the S&P 500 but with some added benefits and disadvantages. First off an indexed policy can never lose any money. In fact the lowest interest rate they will do is 0%, on the other hand though indexed accounts will not be able to earn huge interest returns in fact these accounts will typically be capped at around 8%.
On top of that with this type of policy it also allows you to invest your money in the cash value in either a fixed account, the indexed account, or both. In fact I’ve had several clients were we’ve put 50% into fixed and 50% into the indexed option.
So what does a policy like this cost? Look below.
As you can see in my quote above a typical policy like this is going to run around $40 for a 30 year old male like me. I should also mention that indexed policies are fairly new in the insurance world and can be harder to find.
This type of policy is great for someone who wants a fixed policy that will last their entire life. This policy also makes a great fit for those who want to hedge their bet without all the risk as a variable policy. If this is a policy your interested in read my article on Western Reserve Life. They are one of the top carrier of these types of policies.
Variable Universal Life
The last option is a variable universal life insurance policy. This type of policy is like the last option. It’s flexible with premium payments and the cash value but with one big difference, it’s variable. This means that the cash value is invested in the market. This also means that you could see a loss of value in your cash value account as a result.
However the benefit to a policy like this goes one further. For example if you have a VUL with a $100,000 death benefit and you have $90,000 in the cash value and your averaging an 8% return the policy would have cut the cost of insurance down far enough that it could eventually be self sustaining, meaning with high enough returns and enough money in the cash value you may not have to make premium payment but instead they will be deducted from the cash value.
Now before I go any further I should also mention that this is not a guaranteed option but rather based on the performance of your account. You will also want to consult your insurance agent about this as well since he will be able to put together an illustration as to how this option could best suit your situation. If your looking for an insurance agent check out World Financial Group.
Finally, this type of policy is not recommended for older people say 50 or older, because of the riskier investment options associated with it. However this option makes a great solution for someone who is younger since they will be able to take advantage of the variable option to offset insurance cost down the road.
If this option sounds like something you would like to check out, read my article Western Reserve Life. Western specializes in variable universal life insurance, in fact it is their flagship product. I’ve also compared prices between them and other VUL carries such as Pacific Life and found Western to be much cheaper. Typical policies range from $40 to $50 starting out.
As a final thought on which type of policy I prefer I like the variable universal life. It has the potential to earn high returns in the cash value account, it’s able to offset the cost or insurance through the cash value account, finally it has flexible premiums. In fact I’ve had my policy for several years now and it may not be the cheapest but at least I know I’ll be covered when I need it.
So what policy do you prefer. Do you prefer cheap life insurance policies like term or would you rather pay little more and get something that last a lifetime?
Questions or Comments, you know what to do.