Should I or shouldn’t I is a common question when it comes to buying life insurance. There is no direct yes or no that applies to every individual that is buying this type of insurance. That is because every person is different. So their need or not needing life insurance will be different.

What are the Advantages of Life Insurance in General?

financial security

First, it helps to look at the advantages of life insurance in general. Keeping in mind, there are several different forms of life insurance.

  • It will provide financial security for your loved ones.
  • Life insurance can go towards paying off the debt that an insured may leave as a burden to others.
  • It can help to pay off the mortgage if one exists.
  • For the kids, it can help to pay for their education.

What are The Disadvantages of Life Insurance?

  • It is going to be an extra expense that one will have to budget for.
  • The insurance coverage may not be enough to meet the needs of the beneficiaries.
  • The costs of the premiums can be high.
  • It may have exclusions in the policy that are not beneficial for the insured.
  • The insured may not die from natural death.

Every individual needs to weigh out the pros and cons of life insurance in general. But, before making a final decision one needs to go a step further. It means looking at the different types of life insurance. Then weigh out the pros and cons of these. Only after this can an informed decision be made about life insurance as it applies to the individual.

What are the Different Types of Life Insurance?

options

Out of your many options for life insurance, the most common are;

  • Term Life Insurance
  • Permanent Life Insurance

is the main name for insurance policy coverage that does not expire.

  • Whole Life Insurance
  • Universal Life Insurance

How Do These Types of Life Insurances differ?

Can provide lump sum payout. Plus, has some investment advantages with payouts of dividends or credits.

TERM LIFE INSURANCEWHOLE LIFEUNIVERSAL
Insurance that covers a specific period. Cheaper to buy but increases in expense over time.It can be combined with investments to create tax advantages. Also, can be personalized.

Advantages and Disadvantages to Term Life Insurance

Advantages:

  1. For those who don’t have a lot of money to invest in insurance, but have a current need for it this may be a good choice.
  2. Additional decisions can be made when the term of the insurance policy expires. It can be decided if one wants to renew for another term.
  3. There may be an option to convert the term insurance to one of the other forms of insurance.
  4. Term insurance is a quick insurance solution to meet the immediate needs of the individual.

Disadvantages:

  1. Premiums are likely to increase upon each renewal.
  2. The premiums for the other types of insurance may be higher if the term insurance is converted to one of them.
  3. Age can become an issue with the convertible option of this insurance.
  4. There is no additional cash value to the insurance policy.

What are the Advantages and Disadvantages of Whole Life Insurance?

Advantages:

  1. The death benefit payout remains consistent during the duration of the policy.
  2. There is an opportunity to increase the cash value of the policy.
  3. For those who don’t know a lot about investments, this type of life insurance offers a fairly basic approach.

Disadvantages:

  1. You don’t get to choose the investments that are made with the portion of your premiums that are allocated to investments.
  2. The investments chosen will likely be conservative so the ROI may not be as high as what it would be with other types of investments.

What are the Advantages and Disadvantages to Universal Life Insurance?

cash value

Advantages:

  1. The premiums are usually less than whole life insurance.
  2. You have the opportunity to build up the cash value of the policy.
  3. You can use the cash value increase in the policy to reduce the cost of your premiums.
  4. If you decide to cancel your policy, you can withdraw the cash value that has been built during the life of the policy.

Disadvantages:

  1. The premiums are usually higher for Universal life insurance compared term life insurance.
  2. There is the risk that the cash value could drop and cannot cover the cost of the premiums. This can create a lapse in the policy.
  3. The build-up of cash value can fluctuate due to the volatility of the investments made within the policy.
  4. If you cancel your policy, it may have a surrender fee attached to it. Which would offset what you would get from the built up cash value.

Additional Life Insurance Questions

Now knowing a little more about the options for different types of life insurance, it raises additional questions to be added to the basic questions.  Some of the important questions are;

Do you need life insurance that provides more temporary confidence based on your current financial situation?

If yes:

The answer would be yes if you have a lot of current debt. It means you would want insurance coverage for your beneficiaries that would cover all this debt. In this case, the best choice may be term life insurance.

If No:

Then you would most likely not benefit from term life insurance.

Do you want a life insurance policy that is going to give you the opportunity for some basic investments.

If yes:

Then you may want to consider whole life insurance. It allows for some investments without the pressure of being involved in these investments as to making choices. At the same time allows it for a set amount of death benefit to be paid to the beneficiaries. If you can afford the cost of the extra premiums, this may be a good choice.

If No:

Then it may be you want the type of life insurance that is going to give you a chance to be more involved with the investment aspect of this part of the insurance policy. This type of insurance is probably not your best choice.

Do you want a life insurance policy that is going to give you more control over the cash building opportunities?

If yes:

Then your best choice would probably be the Universal life. You can participate in some of the decision making as to where you want to invest.

If No:

Then you need to decide if the other life insurance choices are better options.

You also need to give some thought as to your financial situation. If you are well off financially and are looking at life insurance for investment purposes, the ROI may not be significant to you. Also, you need to weight out the cost of the premiums for the policy that you would choose. Is the cost going to justify the payout if it is not needed for your beneficiaries?

Resources

https://www.canadalife.com/insurance/personal-insurance/life-insurance/universal-life-insurance.html
https://budgeting.thenest.com/disadvantages-getting-universal-life-insurance-30796.html