Planning ahead with life insurance

Life insurance is for anyone, not just the elderly. The main purpose is to make cash available to support those that are left behind, as well as pay any outstanding debts in your name (student loans, anyone?). In turn, if you have no debts to pay off, this can become your estate to leave behind. Applying when you are young makes you eligible for a better life insurance policy because, in theory, you are in better health than your parents- although doing a few extra sit-ups or quitting smoking might not hurt anyway.When you are young, you are in the best position to apply, because your need for life insurance is low. This is a good way to be proactive. There are many factors to take into account of how much life insurance you will need. Explore your options when buying, either on your own or with a financial or insurance professional.

Let's go over all the different types to understand which type might best work for you:

There are two basic types:

Term life - These policies provide protection only for a specific period of time. They tend to be cheaper and the fee to you is based on this period of time and your other health factors. If the time passes, the policy just expires and neither you nor your beneficiaries will receive anything. These can be renewed once expired but because you have aged considerably since purchasing the original policy, the cost will increase. Term life is usually available in period of 1-30 years at a time.

Permanent (cash value) life - usually this will be the most expensive in the early years to build a reserve as you get older. If the policy is discontinued, the cash value will be returned to you. Under this, there are several more options:

Whole life - Equal premiums for your entire life with the death benefit and cash value predetermined and guaranteed as long as the premium is paid. Any payment in excess of current costs of insurance goes to a cash-value account. This is allowed to grow and is in fact guaranteed under this policy. It is allowed to grow more than it's guaranteed and it's all tax deferred.

Universal life - Premiums can be made in any amount, at any time, and you still get no choice on how the cash value of the policy is invested. While you may choose to pay the minimum premium, it will have an impact on your cash value component and ultimately your death benefit. Another benefit that other policies don't tend to offer is that universal life policies make public all aspects of how the policy is constructed, including the cost to the company.

Variable life - This is more like whole life, but the cash value isn't guaranteed and is based on how the investments in subaccounts are performing. Because of this, you are allowed to choose how this cash is invested. There is a minimum guaranteed death benefit just in case your investments don't perform so well.

Universal variable life - This policy is a combination of universal and variable allowing you to have flexibility in your premium timing and amount, as well as the freedom to choose where your cash value is being invested. This policy provides the most overall flexibility, but again, there is no guaranteed death benefit amount unless you have signed to pay a certain level of premium payments. If the cash value account goes below a certain level, the policy can lapse. Some withdrawals are allowed, but they could be taxable.

After choosing and signing up for a policy, make sure to designate a beneficiary or even more. This can be changed anytime and pretty painlessly. Choose the policy that is right for you and just because you're young doesn't mean you should avoid this insurance. The benefits can be great.