What Type Of Life Insurance do I need?


Some studies show that half of American adults have no life insurance coverage, often because they think they can’t afford it. But many people overestimate how much insurance costs. They assume insurance is just for the rich. However, providing for your loved ones when you die is important to most people. Some policies can allow cash to build over time and can be used to pay common bills or subsidize a large purchase such as a car or a home. 

If you have decided to get life insurance, you want peace of mind that you have the right kind and amount of life insurance. But first you need to choose between two main kinds of life insurance: permanent life insurance and term life insurance.

There are advantages and disadvantages to both. While permanent insurance will last for your entire life, term insurance lasts for a set period of time.  Whole life insurance gives you lifelong protection and a cash value. Term life insurance is mostly used for temporary needs such as a mortgage. 

The trick is to find a solution that is best for you, based on your individual needs. 


This type of insurance is an all-encompassing term for insurance policies that don’t expire. They usually have a death benefit combined with savings options. They do not have a set length or term. A policy holder has coverage throughout their life as long as they keep up the premium payments.

Benefits of permanent insurance include:

  • Your death benefit is guaranteed
  • The premium does not change
  • The account grows in value
  • Coverage does not expire as term insurance does
  • Being treated favorably for tax purposes
  • The opportunity to borrow against the policy or cancel the policy for some of the cash value after a certain amount of time


There are different kinds of permanent life insurance: whole life, universal life, indexed universal life insurance or variable universal life insurance.

  1. Whole life insurance is the most common type of permanent insurance. It is more complicated than term insurance but it gives you protection for life and also includes an investment element. You pay a set amount in premiums and receive a death benefit.

The cash value of the policy grows in a tax-deferred account, so you can get the benefit of your money growing while not paying taxes on the gains while they are accumulating. You can surrender the policy for cash if needed or borrow against the account. 

Some policies earn annual dividends, which you can take in cash, leave in the account to earn interest, use them to decrease your premium payments, pay off policy loans or purchase additional coverage. 

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Whole life insurance details:

  • Fixed premiums; they never go up
  • Death benefit is fixed for life
  • Guaranteed cash value usually grows at a rate that is the equivalent of the death benefit at age 100
  • Low risk 
  • High cost

Choose whole life if you:

  • Want to provide for a lifelong dependent. You can fund a trust to provide for a child with disabilities, for example.
  • Want to give financial help to heirs to pay any inheritance or estate taxes 
  • Want to ensure you leave money for your funeral expenses
  • Know that you will need life insurance for your entire life. This type of policy pays a death benefit whether you live to be 40 or over 100. 
  • Universal life insurance

With universal life insurance, the insured is covered for their entire life providing they pay their premiums and complete other requirements of their policy. Similar to other permanent life insurance policies, universal life insurance has a cash value (savings component) and lifelong protection. Death benefits are paid out to beneficiaries.

Universal life insurance details:

  • Flexible premiums that can be altered
  • Flexible death benefit; you can change coverage amount 
  • Cash value accumulates according to a fixed interest rate; guaranteed minimum
  • Medium to low risk
  • Medium to low cost
  • Indexed universal life insurance details

 This type of insurance gives the flexibility of adjustable life insurance premiums. It also provides an opportunity to increase the cash value of the policy. The insured can decide how much of the cash value of their policy they want to assign to an equity-indexed account or a fixed account. Indexed universal life insurance allows for tax-deferred cash accumulation for retirement while also providing a death benefit.

Indexed Universal life insurance details:

  • Flexible premiums
  • Flexible death benefit 
  • Cash value grows based in part on stock market index
  • High to medium risk
  • Medium cost
  • Variable universal life insurance

A key aspect of variable universal life insurance is that it provides different options for the cash value of the policy. There is also some flexibility in the death benefit. This policy offers a way to provide for loved ones after you die, while also allowing your increasing cash value to be used as you wish.

Variable universal life insurance details:

  • Flexible premiums
  • Flexible death benefit
  • Cash value grows based on market performance
  • High to medium risk
  • High cost


How can I know if I need life insurance?

Generally speaking, if you have people who depend on you for financial support, then you should consider buying life insurance.

Are life insurance premiums tax deductible?

Sadly, no.

What is the difference between term and whole life insurance?

Term life insurance only covers you for the life of the policy. Coverage ends and there is no cash payout if the term ends while you are still alive. Whole life insurance is more complicated than term insurance because it has a cash value that can grow over the life of the policy. Whole life is good until your death.

Is whole life insurance or term life insurance cheaper?

Since term life insurance is only good for a certain number of years, it cheaper than whole life insurance. Your money can grow and be used later in life, so that is why it is more expensive.

Can I convert a term life policy to a whole life policy?

Some term life policies do allow this. Before you buy your policy, determine if you think you might want to change over to a whole life policy sometime in the future. Then check with your insurer if that will be an option.

Who should buy whole life insurance?

Do you plan to have beneficiaries when you pass away? Then whole life insurance can be a good option for you.

Do I need life insurance with a cash value account?

Not necessarily. A cash value account is a savings component as part of some permanent life insurance policies. A cash value account can help you save while you are paying insurance premiums. Do your research to decide what is best for you.

Can I sell my whole life insurance policy for cash?

Yes, you can sell your whole life insurance policy for cash. This can be achieved in a life settlement, which is a sale of a current insurance policy to a third-party for a one-time cash payment. You find a buyer for your policy who agrees to pay the premiums. The downside is there won’t be any benefits for your heirs when you pass away. This option is best used for those 65 and over with a policy worth over $100,000.

Am I taxed on a whole life insurance cash-out?

In general, no. Any money received from a life settlement is not taxed. Any loans taken out against the policy value and the death benefit are also not taxed. Insurance is designed to help in the event of something bad happening and is usually backed by money that has already been taxed, so proceeds are mostly non-taxable.

However, if your policy has a savings element, proceeds might be taxable. Any withdrawals that happen during the first 15 years of the policy’s inception are also taxed.

What is the approval process for whole life insurance?

There are three main types of approval processes:

  • Simplified-issue life insurance involves answering health questions, but no medical exam is required
  • Guaranteed-issue insurance does not require a medical exam or answering health questions 
  • Fully underwritten life insurance usually involves a long application and a medical exam

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