What Type of Life/Health Insurance Coverage Should I Purchase?
Buying insurance for yourself, either for life or health, can be confusing. It really doesn't have to be, because the choices come down to basic economics. The differences in cost between the various types of life and health coverage can be significant, and the benefits can be substantially different, with the highest-cost plans not always providing the best benefits.
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Whole Life Insurance
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Whole life insurance pays the face value of the policy to the beneficiary when you die. It does not need to be renewed, because it is in effect for your entire lifetime. Whole life coverage also includes an investment component, which means that a portion of your premiums are invested and build cash value that you can borrow against. You receive the cash value if you cancel the policy. The premiums are expensive, and the cash value may not build as quickly as private investments, due to large commissions paid to the sales representative and sometimes-poor investment performance. Whole life policies can be used to fund estate planning in certain cases.
Term Life Insurance
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Term life is also called pure insurance, and pays death benefits much like whole life. Term life does not have an investment component, and the premiums are lower for comparable face values. With a term policy, you are only covered for a certain time period, and when it expires, you need to apply for a new policy to continue coverage. It is easier to purchase an adequate amount of coverage with term insurance. You may have trouble replacing expired term coverage at affordable rates if your health situation changes.
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Employer Healthcare Insurance
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Many employers provide health insurance coverage, or a health care plan for their full-time employees. Because an employer represents a group of people seeking insurance coverage, it can purchase coverage at more competitive rates. In addition, many employers pay all or part of the premiums for their employees, and usually assist with the premiums for the employees' families. Employer coverage often has reasonably low deductible and co-pay requirements compared to other policies, and usually includes coverage for preventive care. If you change jobs, you can continue your employer coverage for a limited time at your own expense, but you will eventually have to secure new coverage.
Private Health Insurance
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You can purchase private health insurance coverage outside of your employer from the insurance company of your choice. Because you are buying without the group benefit, the premiums are usually higher. Some people keep premiums lower by increasing the deductible on their policy. They may contribute to a Healthcare Savings Account to help pay non-covered expenses. Any leftover money in the HSA account is yours to keep. If you want maximum control over your health insurance, a private policy may be the choice for you.
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