Which Type of Life Insurance Is Best for You?

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Life insurance can be a very confusing topic. The two major types of coverage illustrate exactly that. At the core, term insurance offers a simple proposition: Pay for protection and you get it. Sure, I understand that's simplifying things, but it's a clean proposition and not too confusing.

On the other hand, permanent coverage has a lot more bells and whistles. Different names -- whole life, universal life, variable life -- different features, a cash value component, long term care riders, and the list goes on and on. My point: You aren't alone if you're a bit confused. There are fanatics on both sides of the "which is better" discussion. They would argue that their favorite, term or perm, is always the right answer.

Here's an alternative. Focus on the reason you are buying or considering -- is it a temporary or forever need -- life insurance. Do that, and you will likely make solid family decisions about life insurance. However, even that straightforward statement can be met with rabid reactions from both sides of the term vs. perm debate. Can ever the two perspectives meet? Perhaps.

One feature of many term insurance policies is called conversion. In other words, you can, without medical underwriting, transfer your coverage from term coverage to some sort of a permanent policy.

Here are several scenarios where this might make sense.

A health issue storms onto the scene. If you're nearing the end of your 10-, 20-, or 30-year term and confront a serious health issue, it may be difficult, if not impossible, to find an affordable way to continue to carry necessary coverage. A conversion may allow you to do just that.

Your savings and investment reality did not meet your expectations. "Buy term and invest the difference" is the mantra of many term proponents. The idea is the money you save on lower term premiums while you are young can be invested to build a substantial nest egg. The thought being that when you arrive at the end of the term, 20 or 30 years down the road, you won't need the coverage. However, if you get there and find that you still need the coverage, a conversion may make sense.

Your work life is changing. Employer-provided group term life insurance is the primary, or only, coverage for many families. Check with your employer, but it could be that some sort of conversion to a permanent policy might be the only way to maintain your coverage if you switch employers.

Caring for special needs. An unforeseen accident or health issue within your family could make it important to have permanent coverage to take care of loved ones when you are gone. This is a good example of changing goals. A need that was temporary becomes permanent. In the same vein, some permanent policies offer long-term care coverage, so it could be your own situation that drives you to a permanent life insurance solution.

You add some perpetual goals. Estate planning goals like leaving a legacy, funding a trust or supporting an organization that does work that you're passionate about are often the type of objectives that pop up later in life. They also may be "needs" best funded by a permanent life insurance policy that could trigger a conversion discussion.

It's critical to understand the timelines, deadlines and offerings that apply to your specific term insurance policy. And don't forget to look at the premium implications of such a policy. Sure, there's no medical, but you are older, and permanent coverage is typically significantly more expensive as it is. It wouldn't make a lot of sense to do a conversion and end up with a policy that you can't afford.

When it comes to life insurance, never say never.

Get the Coverage Your Family Needs

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