What type of life insurance is right for me?

• Permanent life insurance policies are cheaper than term life insurance in the long run.
• Life insurance should be customized to meet your needs.
• No matter what you choose, work with an agent to determine how much life insurance you need.

You may not think life insurance is for you. You might think, It’s too expensive, or I’m too young to think about the best life insurance companies. You’re not alone in your skepticism. More than half of people overestimate the cost of life insurance, and 30% believe life insurance is only for end-of-life expenses. But life insurance can be an affordable expense, and it isn’t just for paying for funerals.

Unfortunately, because of all these misconceptions, many life insurance agents and financial planners find the most receptive clients are often those for whom it’s too late. Life insurance is available when you’re healthy, and lower prices are available when you buy young.

But before you sign on the dotted line for life insurance, you need to determine what type of policy is right for you. Savvy buyers can compare the best term life insurance with permanent life insurance options. More often than not, buyers who work with a qualified life insurance agent can buy a customized policy that fits their needs at a lower cost than they initially expected.

We lay out the pros and cons of life insurance and different types of life insurance that might pique your interest.

Term life insurance

Term policies last for a set number of years, generally 10, 20, or 30. This means you’ll make monthly payments on your policy for the duration of your term to secure a payout should you pass away during the term. Though, if you don’t die within that period, it expires with no payout. Term policies are often presented as an affordable alternative to permanent life insurance products. But, in the long run, term policies cost more every time. Why?

Even the best term life insurance policies typically never pay out as the buyer outlives the term. After a term life insurance policy expires, it can be renewed or converted, depending on the company. Some life insurers even guarantee conversion within set parameters. However, even with this guarantee, monthly premiums will rise while the death benefit drops. If you’re buying from a company that does not guarantee conversion later on, you could lose your entire investment with no option but to try to buy a policy elsewhere.

Experts suggest buyers should multiply their current income. The idea is to replace your income to help your family maintain the same standard of living while they find other jobs or otherwise recover. For some families, it may also mean paying down debt to reduce the family’s financial burden.

Term life insurance policies offer a short-term life insurance solution. Introductory premiums are generally low, creating an easy-to-digest method of entry. Some buyers also feel they will only need life insurance during their prime working years, at which point a term policy may be appealing. However, any buyer should be aware of the long-term picture.

Whole life insurance

Unlike term life insurance, whole life insurance lasts your entire life. It’s one of the more popular types of life insurance since it’s pretty straightforward. You pay the monthly premium, and your life insurance payout is guaranteed upon death. It also has a cash value that you can access or borrow against for retirement, buying a house, or otherwise.

A highlight of whole life insurance or other permanent life insurance products is accelerated death benefits specific to terminal illnesses or disabilities. Some term carriers offer riders to provide a similar service with term policies, but again, the policy eventually expires. A whole life policy with accelerated death benefits allows buyers to withdraw money early in the event of a terminal illness, disability, or otherwise. It provides a safety net just in case your post-working years don’t go as smoothly as you expect.

Other types of life insurance

While term and whole life insurance are the two primary types of life insurance, there are other options.

Universal: A universal life insurance policy is similar to a whole policy in that it typically lasts for the insured’s life. Some term companies have recently introduced universal policies like term life insurance. This policy also offers flexible premiums, and the cash value continues to grow as long as you make payments. In short, it has the appeal of higher death benefits (or accessible cash) if you live to see age 120 without missing a payment. If you see a company offering a universal policy comparable to a term policy, make sure you know how the product works and when it expires.

Variable: A permanent life insurance option, variable life insurance also has a cash-value portion the company invests. The downside is that the returns are not guaranteed to stay stable. The upside is the fluctuations in the market often produce higher returns overall. Some life insurance policies also offer protection against losses. However, any additional protection may translate into higher premiums.

Final expense insurance: This is a relatively inexpensive cash-value policy with death benefits of around $20,000-$30,000 in most cases. It’s great for those who don’t want to burden loved ones with funeral costs when they’re gone. Many final expense insurance policies are marketed towards relatively healthy seniors who did not buy earlier. Buyers can get policies with no medical exam, but insurance companies will still pull your medical records to make underwriting decisions.

Other factors

Now that you know the main types of life insurance and how it works, it’s time to apply that knowledge to your life and insurance needs. Factors like your age, income, health, gender (did you know women live on average four to seven years longer than men?), and budget come into play here.

Personally, my husband and I opted for term life insurance policies (from Costco, no less!) with 10-year terms. After that, we’ll likely convert our coverage to a whole policy. I’m a big fan of the set-it-and-forget-it mentality. Our income has also increased since we got our first policy. So this makes sense to us.

Life insurance isn’t a one-size-fits-all thing. But taking the time to research the different types of life insurance and choosing the one that best suits your needs can have a big payoff in the end. Pun intended.