What are the different types of life insurance, and which one should I purchase?

There are two main categories of life insurance: term and permanent. Term life insurance is for a specified period (the term), while permanent life insurance is in force until you stop paying premiums or you die. Whole life, variable life, or universal life are all forms of permanent life insurance and have a similar attribute in that you pay a premium that consists of a portion that pays for the life insurance, a portion that is invested, and a portion that pays for operating expenses and profit of the insurance company.

Term insurance is more of a pure insurance product, similar to car insurance, where you pay for it in case something bad happens. In the event of this bad thing happening, you or your beneficiaries can get much more of a benefit than what you paid in premiums (or ever were going to pay in premiums).

When I started this post, it was starting to grow into pages and pages of examples of the pros and cons of the various insurance types. If you want those examples and reasons backing my forthcoming opinion, I am happy to share my viewpoints with you. You can also just search for pros and cons of whole life insurance to see how polarizing the subject can be. Like most things, the truth lies somewhere in the middle of those arguments. For the purposes of this post, I will summarize that I believe most people should buy term life insurance as opposed to permanent. This gives you the flexibility to invest in the market appropriately and purchase only the insurance you need when you need it. If you need help investing, you can pay a reputable financial advisor less than what the insurance company would have charged you.

How much insurance should I have?

When it comes to how much life insurance you should buy, first, you should only purchase life insurance if there is someone depending on you and/or your earning power. Further, you should only purchase the amount of insurance that those depending on you would need if they were to lose your earning power or services. There are rules of thumbs out there for how much insurance to have. For example, Dave Ramsey suggests you have enough for 10-12 times your income. However, it is better to think about what your dependents need to live comfortably and then consider what other forms of income/assets they will have to their avail, such as life insurance built up through social security.

Please reach out if you need help in determining how much life insurance is appropriate for you. I work with multiple insurance companies to get you the best price. Term life insurance can be very affordable and provide security and peace of mind to you and those who depend on you.