Psychologists use the expression “decision paralysis” when someone is faced with too many options and is afraid of making the wrong choice.1
At times, people looking to buy life insurance can suffer from “decision paralysis” when reviewing the pros and cons of a whole life insurance policy and comparing it with the features of a term policy or a universal policy. People can believe it’s an “all-or-nothing” decision, when, in fact, a variety of policies can play a role in your personal finances.
“And you shall remember the Lord your God, for it is He who gives you power to get wealth, that He may establish His covenant which He swore to your fathers, as it is this day.” Deuteronomy 8:18
When we work with people who are interested in life insurance, we start by conducting a needs analysis to assess how much coverage they may need. At the same time, we highlight the differences between term, whole life and universal policies. Here’s a brief overview:
Term Life Insurance: Think of term life as “pure” insurance. It offers protection only for a specific period of time. If you die within the time period defined in the policy, the life insurance company will pay your beneficiaries the face amount of your policy.
Term life insurance is often less expensive than permanent insurance, especially when you are younger. It may be appropriate if you want insurance for a certain length of time, such as until your youngest child finishes college. The main drawback associated with all types of term insurance is that premiums increase every time your coverage is renewed. Term insurance can become more expensive when you need it most–in your later years.
Whole Life Insurance: When you purchase whole life insurance, the policy remains in place as long as you make payments. In exchange for the premium, the insurance company promises to pay the beneficiary a set benefit upon your death. In addition to providing a death benefit, whole life policies build cash value that can be accessed by the policyholder. One drawback to consider is that whole life policies tend to be more expensive.
Universal Life Insurance: Universal life was developed in the last 1970s to overcome some of the disadvantages associated with both term and whole life insurance. Universal policies are flexible. As a policy owner, you have the opportunity to increase–or decrease–the amount of coverage depending on your life situation. Of course, changing your payment will affect the overall policy, including the size of the death benefit.
Remember, several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Before buying, be sure to have an understanding of the policy charges and fees. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. It’s important to determine whether you are insurable before considering a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
In his popular book, Diamond of Life: The Five P’s of Success and Significance, Mick reminds readers, “As important as it is to ‘have a plan,’ it’s more important to let/allow God to direct your steps. After all, He created you and the stuff we often chase.”
There are no incorrect answers when it comes to life insurance. The only wrong answer is to overlook the role life insurance can play in your overall financial strategy.
“The best life insurance policy is the one that’s in force when you die,” said Mick. He explained that few people are concerned with the type of policy when a loved one passes. They are more comforted and relieved when they learn a life insurance policy was in place.
Psychcentral.com, 2024
