Life is good. But because you never know what lies ahead, now might be a good time to add life insurance to your to-do list.

Industry data shows that income replacement is 2019’s No. 1 reason for buying life insurance, but it’s ranked so by 37% of survey respondents versus 44% two years ago. On the flip side, is what’s become a more important motivator: Protecting a business, key to 21% of respondents versus only 3% in 2017.

More concerning might be over who seems to be missing the boat. Millennials, a demographic that would most benefit by life insurance from a timing and pricing perspective, are so uninformed and underserved that they tend to skip getting it altogether. Other data indicate:

  • 58% don’t buy it because they don’t understand the kinds of policies or how much to buy.
  • 38% don’t buy out of fear they won’t qualify.
  • 43% have never been approached to buy it.

The varieties of life insurance types can be confusing. Here’s a simplified of the two basic options, term and permanent life insurance:

Term life insurance – matching policy length to the duration of need

Term life insurance allows you to buy a policy that protects your interests for a period of years – typically between 10 to 30. If you and your spouse are just starting out your lives together and want to make sure your longer-term needs are covered while you accumulate assets, this is the way to go. Term covers future earnings, especially to supplement your group life insurance benefits, should either or both of you die prematurely. Your children’s living expenses and future college costs. That 30-year mortgage on the house you just bought.

Term life provides a large amount of protection, locked in at a reasonable cost – more so if you are younger when you buy. That makes it attractive for those who want protection even though their budgets are limited. Still, the rate per thousand of death benefit is lower than for permanent forms of life insurance. There’s only a payout if death occurs before the term ends. It can be paid as a lump sum (which most people prefer), in monthly payments or an annuity. No equity builds in the policy as it does with permanent insurance policies.

When the term ends, so does your policy, unless you renew it or buy a new one. Either way, your premiums will go up. And if you’re hoping for a lower rate at renewal, your policy may require a physical.

Permanent life insurance – various choices under a big umbrella

What distinguishes the types of policies in this category from term policies is that they are good for as long as you pay the premiums, plus, all have a cash value component. There are distinct differences among these policies, though. Here’s an overview of some of the better known options:

  • Universal life: Your premiums go toward the policy’s cash value and death benefit, but there’s a twist. You can change the amounts of your premium and death benefit without getting a new policy. If you have enough cash value, the accrued interest on it can do the work of paying the minimum premium amount required to keep the policy in force. Careful, though: that interest rate on the cash value is market sensitive and fluctuations can affect your cash value and premium. You can also adjust the death benefit as per limits outlined in your policy. It all gives you flexibility that is a big selling point for universal but also can add to the complexities.
  • Whole life: The cash value that accrues with whole life adds to the complexities given considerations of surrender fees, taxes, interest and various other stipulations. But that cash value can also cover things like endowments and estate plans. It’s also worth noting that the cash value component is a savings account that includes dividends from the life insurance company. That can translate into lower growth vis a vis other investment options, but there is a guaranteed minimum rate paid.
  • Variable life insurance: Unlike whole life policies, the cash paid into variable life products goes into mutual fund-like investments that can show far better returns (and tax-deferred, too) than money put into a whole life policy’s savings account. But they are riskier, too. The problem is that most people aren’t sufficiently knowledgeable to effectively manage their investments – which tends to limit the effectiveness of these policies.

There are more options, of course, but in, again, life insurance can be complicated. A knowledgeable insurance broker can be a useful guide. To get a real-time quote for your life insurance and other personal insurance needs, visit our Personal Insurance Marketplace.