The Best Life Insurance Plans for Young People

If you have a young family then you might need life insurance. Young people needing life insurance might not be able to afford an expensive policy, but they are also in an ideal position to purchase a policy which will be initially expensive but which will become less expensive over time. Make sure you make the right choice for you and your family.

Term Life Insurance

Term life insurance is the most basic form of insurance. Term insurance allows you to purchase a death benefit for a set amount of money each month. Alternatively, you can pay the cost for the insurance policy, called a premium, on a quarterly basis (four times a year) or annual basis (one time per year). Term insurance is great if you need life insurance but cannot afford a permanent policy. When purchasing a term policy, buy the longest term policy you can afford that fits into your financial goals.

Permanent Life Insurance

A permanent life insurance policy is cheaper when you are young. A permanent policy provides two things: a death benefit to protect your family and a cash value account to use as a savings. If you can afford to purchase a permanent policy this might be the ideal kind of policy for you. If you live to the maturity date of the contract (age 100 or 120), the insurer will send you a check for the death benefit or allow you to keep the death benefit invested until you die and then pass the money on to beneficiaries. Also, you may cancel the policy at some point and receive all of the premiums back that you've paid. When this option is available depends on how fast the cash value builds up in your particular policy and when the insurer allows you to cancel the policy without paying a penalty. If you keep the policy, it can be used as an emergency fund or used to supplement your retirement income through policy cash value withdrawals or loans.

Compare Benefits

The benefit of a term policy is that it is a cheap form of insurance from a premium standpoint. It's simple to understand and provides a high amount of death benefit relative to the premiums you pay. If you purchase the policy and die tomorrow, your family will get the money it needs to live on -- this is especially important if your spouse is financially dependent on you. The benefit of a permanent policy is the long-term ability to build a cash value account as well as the potential for increases in the death benefit as the policy ages.

Considerations

Purchase a policy which fits into your financial goals the best. Regardless of the policy type, make sure you purchase the correct amount of death benefit -- an amount that covers all your personal financial liabilities.

References

• "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
• "Life Insurance"; Kenneth Black, Jr., Harold D. Skipper, Jr.; 1994
• "Ernst & Young's Personal Financial Planning Guide, 5th Edition"; Martin Nissenbaum, Barbara J. Raasch, Charles L. Ratner; 2004