This is one of the most common questions a life insurance agent will get in the course of his career. Most of the time, the answer will always incline on the personal preference of each agent.
That’s okay – that’s what I often say to myself. The thing is, each individual has their own definition of “what the best life insurance plan” is, depending on their current financial situation, which is always unique.
If you are reading this and are currently contemplating what the best life insurance plan is for you, then you are at the right spot.
Let’s start by looking at the three (3) Life Insurance Plan available in the market. This can guide you on making the right choice that fits your current financial situation. It would be best to have a basic understanding of these Life Insurance Plans before going to specifics like what life insurance company, or what specific product you’ll get.
Three Basic Life Insurance Plans
- Term Life Insurance
- Return of Premium (ROP) Life Insurance
- Permanent Life Insurance
Term Life Insurance
If you are looking for the most inexpensive life insurance plan that will provide the most amount of life insurance coverage, term life insurance is your best option.
This life insurance plan is best for people who:
- Have a very limited budget but needs a huge amount of life insurance coverage to protect their loved ones who are depending on their income. This can include:
- Single parents
- Families with a single breadwinner
- Are buying a home and are financing it with a mortgage (used as Mortgage Redemption Insurance – MRI)
- Needs a temporary life insurance coverage for other temporary needs like ensuring their children have the funds to go to college if they die early.
One drawback of term life insurance is that it accumulates no cash value or earns no dividends nor interest. Once you stop paying, you lose all the coverage.
It’s like renting a car or renting a house, once you stopped paying, you stopped having the right to use them.
Return of Premium (ROP) Life Insurance
ROP Life Insurance is technically a term life where your premium payments are refunded back to you once you outlived the policy.
It means that if you are paying P10,000 for your life insurance for the past 20 years, at the end of the 20th year, you’ll be receiving a return of premium (refund) of P200,000.00. One drawback is that once the premium is returned, you no longer have insurance, at an age where you need it the most.
Just like the basic term life insurance, this policy is best if you are protecting goals for a specific time period, again, like securing the education of your children.
Some people say that if you get an ROP Life Insurance, it’s just like saving cash in your piggy bank – you don’t earn anything. However, that’s not the point of life insurance anyway. The point is you have life insurance coverage.
It’s a great plus that you receive a life insurance coverage, and if nothing happened for that specific period, say 20 years, you’ll get your money back. Sweet deal!
Permanent Life Insurance
If term life insurance is temporary, a permanent life insurance is, well, permanent. This type of insurance provides coverage for your lifetime.
This type of insurance is best for protecting a more permanent need, like preparing a legacy, ensuring funds are available to pay the estate tax, and in covering final expenses.
The good thing about permanent life insurance policies is that they accumulate cash values where policyholders can withdraw or take a loan from (depending on what type of permanent life policy). Also, it earns interests and dividends, which is a good way to make your money work for you.
Permanent life insurance policies are one of the many financial instruments that you can use in preparing for long-term goals like funding your child’s college education (best to start at age ZERO) and definitely, in funding your retirement.
There are several types of permanent life insurance policies. In the Philippines, one of the most popular right now are Variable Universal Life policies, popularly referred to as VULs.
I think that it’s a good option. My wife and I have several VUL policies, but then again, it’s best to align everything on your financial situation right now, and not just make your choice on what’s popular.
Best Life Insurance Plan
One strategy that many people use here in the United States is that they start with a convertible term life insurance. It’s wise to do it this way because, at the very start, you’ll be able to have a good amount of coverage without hurting your budget so much.
Once the financial conditions improve, you can convert your term life insurance to a permanent life insurance policy, either be a whole life insurance, or a variable life insurance, depending on your risk tolerance.
At the end of the day, everything depends on your current financial situation and your risk tolerance. If you are getting a life insurance policy today, try to explore your options based on what you currently need and your ability to pay.
Discuss your situation thoroughly with your Insurance Advisor.