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How to Pick the Best Life Insurance Plan for Every Budget

By: David Bach  |  Last Updated: October 5, 2020
Financial Expert & 10x New York Times Bestseller
This content was originally published on Money.com
IN THIS ARTICLEWhat universal, whole and term life insurance actually mean
The supreme affordability of term life insurance
The pros of whole and universal life insurance
Which life insurance plan is right for you?

Few, if any, types of insurance are less talked about, yet so critical, than life insurance. Its significance is right there in the name. If the unfortunate fate we don’t like to talk about unexpectedly befalls you, life insurance is there to ease the process for all of those around you after your passing.


Digging into the details of life insurance policies is paramount to getting optimal coverage. And, as with any insurance, there are a lot of details to consider. Whether you’re contemplating the options provided through your employer or other offerings on the private market, just understanding the different forms of life insurance is enough to make your head spin. That’s why I’m here to help. Below, I break down the three main types of life insurance to help you figure out which option is right for you.

What universal, whole and term life insurance actually mean

There are three different forms of life insurance: universal life insurance, whole life insurance and term life insurance.

But you’re better off thinking there are just two overall types of insurance, says Lauren Silbert, VP and general manager of The Balance: “One is permanent — or, until you die — and one is temporary. Universal and whole life insurance are permanent. Term life insurance is temporary,” lasting as long as the time period for which you signed up.

“Term life insurance is really common and often the type your company might offer to you as a benefit,” Silbert adds. It usually extends anywhere from five to 30 years. 

With any of these plans, it’s important to note that the same basic mechanism stays in place: While a plan is active, if the policyholder dies, a payout goes to a beneficiary (or beneficiaries) that he or she previously assigned.

The advantages of permanent life insurance are pretty self-evident: These insurances remain intact as long as the policyholder is alive and paying the annual premiums. Another way to look at it is this: If you die just after the expiration date of your term life insurance, your loved ones get nothing.

The supreme affordability of term life insurance

If you go the permanent life insurance route, expect to pay hefty premiums for all of its advantages. “Term life insurance isn’t just less expensive than whole — it’s a lot less expensive,” says Allison Kade, the editorial director at Fabric, a site and app geared toward connecting parents with life insurance policies.

In some cases, term life insurance is close to 20 times less expensive, she adds. “A 30-year-old, non-smoking man in excellent health in Washington, DC might get a quote of $460-plus per month for $500,000 of coverage on a whole life policy.” For similar coverage on a 20-year term through Fabric, though, it may be closer to $24 a month.

Fabric focuses on term policies, believing that, “if you’re looking to help protect the people who depend on you financially during the time they need you most, such as while you’re raising young kids, term life insurance is the simplest and most affordable way to do that,” Kade explains.

The pros of whole and universal life insurance

Universal and whole life insurance come with much steeper premiums, but they have distinctive advantages. Also, keep in mind that while they both fall under the category of permanent life insurance, they’re by no means the same thing.

The “major benefit” of permanent policies other than longevity, according to Silbert, “is that they accumulate a cash value over time [with a set amount of interest] so you’re able to borrow against it.” In other words, you could access that cash in the form of a withdrawal or loan, or you could even use it to pay down premiums (exact terms will depend on the specific insurance company and plan).

Whole life insurance is the most solid and, by the same token, the most locked-in option. Its “premium rates do not change over time, so they guarantee a strict payout,” Silbert says.

“Universal life is similar to whole, but with more flexibility,” Kade says, meaning the exact death benefit and the amount and frequency of premium payments may be adjusted (subject to terms of the contract).

Premiums, along with cash value, on universal life can rapidly rise or drop with market conditions. This avenue can make sense for those who don’t want to predict their exact financial situation years ahead of time. (Though, again, if precarious finances are a significant concern, term life insurance may ultimately be the way to go.)

Which life insurance plan is right for you?

“Having any type of life insurance is a good choice to protect your loved ones from undue hardship after you die. So if you’re just choosing between types, good job,” Silbert says.

When it comes down to the brass tacks of buying a plan, it’s crucial to shop around — and do so with both immediate and long-term goals in mind. If you’re attracted to the security of life insurance but you’re not able to spend a lot on a policy right now, term life insurance may be for you Silbert says: “Just remember, you’re usually at your healthiest when you’re younger, and premiums can change dramatically based on your age and health.”

On the other hand, “if you’re ready to contribute to a more guaranteed policy and think the cash value of a permanent policy is a good investment vehicle for your personal situation, you should consider whole or universal life,” she says.

It’s smart to think of such an investment as part of a broader portfolio. Sturdy investments in stocks, bonds and mutual funds have their own unique upsides for the future, even when death isn’t in the equation.

Of course, if you’re still overwhelmed by the possibilities, know that you can always get help from an advisor.

“Find a financial advisor that you trust and have them take you through all of your options and potential scenarios,” Silbert suggests. “They have explored so many different situations for their clients, and they can usually clarify any questions you will have.”

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