Good decision! That’s the first step in the financial planning process. But what’s the best type of life insurance for me and my family?
There are many types of life insurance available. Term life insurance provides an amazingly simple, yet highly cost-effective financial safety net that just about anyone can get, assuming decent health.
These days you don’t need to be a marathon runner to get a quality term insurance policy, either. Make sure you find a good life insurance broker with lots of experience helping people find the right product.
Years ago, life insurance only came in two flavors, whole life and annually renewable term insurance or ART as it was known. That’s it! Whole life goes beyond this discussion, but just know that with this type of policy, premiums start out high, but they never increase and you can keep the policy for your “whole life”. Get it?
Thirty years ago, one insurance company had the smart idea to understand that many people wanted to keep term insurance policies on the books for longer than just a few years.
So, some smart home office actuary realized that if they simply averaged out the premiums on an ART policy(remember that term?) over five years it offered consumers a better deal and they were more likely to keep the policy and renew beyond the initial level payment period.
Some of the newer, more “modern” types of policies on the market today would have been unheard of back in the ’80s. One of the more complicated is “indexed universal life” where the cash value is invested in an index like the S&P 500. The tax treatment for IUL can be a bit tricky, so be careful. My colleague, Doug Mitchell has written about the tax treatment of IUL cash value and is an expert on this subject.
More and more people who bought life insurance liked this idea and bought large amounts of this type of insurance. After a decade or so of shorter duration level premium term life insurance policies, companies began offering longer lock-in premium periods. Fast forward to today, we have almost any duration a consumer could want, hence the term “modern” policies. So, essentially, term insurance is the best type of life insurance for seniors, Millennials, Boomers–almost everybody!