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Choosing the Right Policy

What kind of life insurance policy should you buy? It is a complicated question, because the answer depends on your needs, which will change over time, as well as the details of the contract. It doesn't help that there are a dizzying array of policies and options that you can use to achieve your insurance objectives.

Insurance needs change over time, but everyone follows a typical pattern consisting of four separate stages:

  1. As a young single person, your only need is to cover debts and obligations, so someone else isn't saddled with them.
  2. When you get married and/or have children, you must ensure that your family will be financially secure if something happens to you. This is usually the period of maximum life insurance needs, but also the time you can least afford high premiums.
  3. Eventually the children grow up, and as dependents become self-supporting, your life insurance needs decline.
  4. As you age, you need to plan your estate. Permanent insurance can be useful for covering obligations such as your final year's tax bill.

The type and amount of insurance you require will vary during each of these phases. At first, a simple term policy may be adequate and inexpensive. Looking ahead, though, you may want to put some coverage in place for your estate. A whole life policy bought now could be much cheaper than if purchased later in life.

A typical compromise is to buy a small amount of term coverage until marriage, then increase that coverage as your needs grow. You may also want to consider buying a permanent policy. If estate needs are substantial, some additional permanent coverage may be purchased even after retirement. Many people find the flexibility of Universal Life very attractive in this situation.

Choices depend on many factors. Quite often, the best result can be obtained with a combination of policies that accommodates your changing circumstances. The various features and options on different policies may provide additional choices.



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