Life insurance is an important investment that can provide peace of mind and security for your family.

The peace of mind that comes with owning life coverage is invaluable.  Although your personal life insurance needs depend on a lot of factors, the two questions you’ll ultimately face when looking for life insurance are what type is best suited to your needs and how much do I need? It can be difficult deciding which one will work out the most financially but don’t worry-we’re here with some insight on both topics!

The two main types of life insurance available are term life insurance and whole life insurance. We break down the pros and cons of both…

Term life insurance

With Term life, you’re family (aka beneficiaries) receives a payment if you pass away during a set period (or term) stipulated in the the policy coverage period. Term periods typically offered are 10, 15, 20, 25 and 30 years.  So, if you buy a 30-year term life policy with $1,000,000 in coverage, you’ll make a monthly payment for 30 years. If you pass away during those 30 years, the insurance company will pay your family $1,000,000 (aka the death benefit).

Pros: Term life insurance is the more affordable and simplest option. Your beneficiaries could use the money to replace your income and cover expenses like education, mortgages, outstanding debts, or whatever they please. It’s basically a way for you to ensure your loved ones are taken care of when you are gone.

Cons: If you outlive the term period no death benefit will be paid out; essentially, if you don’t use it…you lose it.

Who’s it Good For: Ages 20s-60s; a financial obligation to provide for family; limited budget.

Whole life insurance

Whole life insurance is a type of cash value insurance, meaning the policy builds up a cash value in addition to the  death benefit. Whereas term life insurance provides coverage for a set time period, whole life insurance provides coverage for your entire life. For this reason it is usually much more expensive than term life insurance, you pay much higher premiums.

Pros: You can’t outlive a whole life policy; as long as you continue to pay monthly premiums the policy will pay your family a death benefit.  Whole life policies also build cash value over time, an additional bonus over the death benefit.  

Cons: The Cost! Whole life policies are expensive.

Who’s it Good For: Ages 20s-50s; a financial obligation to provide for family; considerable disposable income; business owners needing to fund a buy-sell

Of the two, the most affordable option is a term life insurance policy that allows you to choose the policy length and pay a lower premium.  It is the cheapest way to protect your family long term especially during those critical years when they need it most (school, college, mortgage, etc).

In terms of coverage, the recommended amount is 10-12 times your annual income – or as close to that amount as your budget permits. This way, your income will be replaced in the event that you are no longer around to provide for your family.

In the long term, a good life insurance policy can provide your family with financial security if you’re no longer able to take care of them. And in the short term, it can offer some serious peace of mind. Buying life insurance is an important decision, so it’s worth doing some more research to find the best types of life insurance and the specific policies that make the most sense for you.