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Life Insurance: What Policy is Right for You?


In this third article in our four-part series, we discuss how to choose between the different types of life insurance.

Choosing between two roads

In Part 1 of this series, we provided an overall summary of life insurance and why it is an important part of any financial plan. Part 2 covered the basic types of life insurance. Now, it’s time to help you figure out what kind of policy might be right for you.

Determining Factors

Most of the questions that will factor into your choice of life insurance will be pretty obvious to most:

• Age and health

• Current and future financial status

• Family situation, including your partner’s income and health, number of children, etc.

• Practice ownership status

• Saving and investing strategy

You were with me until that last bullet, right? What is “ saving and investing strategy” doing in that list? Bear with me, and it will start to make sense.

One Size Doesn’t Fit All

Looking back at the types of life insurance we covered in Part 1, you can draw some general conclusions about how the bullet points in the section above can point to a type of insurance that is right for you. One important note, however: because there are so many variables to consider, these generalities won’t work for everyone. For example, the structure of term life might suggest that it isn’t ideal for those nearing middle age. But if your priority as a policyholder is some coverage but at the absolute lowest cost possible, term might be right for you. This is another reason you should consult a trusted expert to help you sort through all of the options available to you.

With that caveat in mind, generally speaking, you might consider term insurance if you’re looking for protection during a specific time period (usually between five and 30 years) at a reasonable price. Death benefits are paid only if death occurs during the period covered by the policy, and coverage ceases when premiums are not paid. Some term policies are renewable, which means you can extend coverage without going through another medical exam, though your premiums are likely to increase as you age. Some are also convertible into universal life policies.

You might consider permanent life insurance if you want protection for as long as you live. The death benefit is guaranteed, and the cash value of the policy can grow—tax deferred. Premiums are designed to be level and generally do not increase as you age. Permanent life insurance is flexible and adaptable. It helps you keep more of your money by minimizing your taxes but with no contribution limits, no early withdrawal penalties, and no income taxes on any money you pass along. It also has cash value that can grow over time like equity in a home.

Much of the complexity that surrounds life insurance has to do with the variations among permanent life insurance plans. That’s because permanent policies come in many forms to appeal to many different kinds of investors—including those who would like to have some growth potential alongside their family protection. By design, permanent policies are not just a death benefit, so they have varying degrees of risk and potential reward.

Don’t let the variety of the types of plans keep you from pursuing life insurance. Find a professional at a company you trust, and then work through your options. You may find after you’ve waded into the waters and grown accustomed to them that securing protection for your family was easier than you envisioned.

In Part 4, we’ll look at how to strike the balance between an affordable policy and the right level of protection for you.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice