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(CNN) —  

Life insurance may not be one of the most glamorous purchases you can make, but it’s a necessary one for many Americans. After all, life insurance coverage may be the only source of financial protection for your family if you pass away during your working years. Without coverage, your spouse and dependents could easily struggle to pay your final expenses, let alone get by without your income for years to come.

But because there are so many different types of life insurance, searching for a policy can be downright overwhelming — yet failing to buy life insurance could easily leave your family in a dire situation when you’re no longer there to help.

So if you don’t already have life insurance, you should consider whether it makes sense for you to be covered. And if you’re in the market for a new life insurance policy, our guide will help you explore the different types of insurance that are available, depending on your budget, needs and goals.

Do you need life insurance?

For the most part, many people could benefit from having some sort of life insurance coverage in place. In particular, most experts agree that adults with careers and kids should really have a significant amount of coverage in case the worst happens.

But Americans haven’t necessarily gotten the memo. In fact, a 2020 Insurance Barometer Study from Limra, an insurance and financial services research association, shows that the number of people with life insurance in the United States has fallen nine percentage points to 54% over the last 10 years.

The experts at Limra note that this trend could be due to a broad drop in employer-based group life insurance benefits. However, the result is the same — fewer people with life insurance coverage means fewer families are afforded this type of financial protection.

If you’re unsure whether you need life insurance, here are some of the reasons you may want to buy coverage:

  • Income replacement: At its core, life insurance is designed to provide replacement of your income once you’re gone. This can be crucial if you have a spouse and/or dependents who are relying on you during your working years.
  • Coverage for other financial obligations: If you have a mortgage, a car loan, credit card debt or other financial obligations, the proceeds from a life insurance policy can be used to pay off your debts. Without it, your family could be left figuring out how to liquidate your assets or pay your bills after you’re gone.
  • Final expense coverage: According to the National Funeral Directors Association (NFDA), the median cost of a funeral with burial and viewing (without the cost of a vault) was $7,640 in 2019. Without life insurance coverage, your family could struggle to cover these final expenses.
  • Better rates and eligibility when you’re young: If you’re young and healthy, now’s the time to buy life insurance since you’ll qualify for lower rates. And if you wait to buy coverage and your health deteriorates, you may not even qualify for coverage later on.

When should you skip life insurance? Most experts agree there are situations where you may not need life insurance at all. If you’re young and debt-free and you don’t have any dependents, it’s possible you may not need this important coverage. The same can be said if your kids are grown and you have plenty of assets, or if you’re already retired and no longer need to replace a lost income.

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Types of life insurance

Most, but not all, life insurance policies require a medical exam in order to qualify.
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Most, but not all, life insurance policies require a medical exam in order to qualify.

As you shop for and compare life insurance policies, you should know about the many types of life insurance out there. Policies exists for every budget, whether you just need cheap life insurance coverage for your working years or you’re a high-net-worth individual who wants to pass on tax-free income to your heirs.

Keep in mind that most types of life insurance require applicants to go through a medical exam. This physical is used to determine your general level of health, as well as how much you’ll pay in premiums.

While there are types of life insurance that don’t require an exam, favorable results from a medical checkup can help you secure lower premiums or afford a higher level of coverage, so you shouldn’t shy away from taking one. With that being said, some individuals in especially good health or at a young age may be able to qualify for “no exam life insurance” at a relatively reasonable price.

Let’s break down the various types of life insurance you may want to consider and explore which type may be best for you.

Term life insurance

Term life insurance is the most basic type of life insurance coverage, but that doesn’t mean it’s any less valuable. With term life insurance, you’ll typically pay a fixed premium in exchange for a fixed amount of coverage for a specific term or period, usually 10 to 30 years. If you pass away during the term of your policy, your family is paid the amount of your fixed death benefit.

Because term life insurance coverage has a start date and an end date, this type of protection is typically the least expensive to buy. However, once your term ends, you won’t have any coverage. Also, there are different variants of term life insurance coverage you can choose from, including return-of-premium policies that let you get your premiums back when your policy ends, or term coverage you can convert to permanent life insurance later on.

Best for: People who need a considerable amount of income protection during their working years and those buying life insurance on a budget.

Whole life insurance

Whole life insurance is a type of coverage that is permanent, meaning your policy lasts for your lifetime. While whole life is more expensive than term life insurance, the lifetime benefit that whole life offers can provide consumers with more peace of mind.

Like term life insurance, premiums on whole life insurance generally stay the same throughout the policy, and your beneficiaries receive a guaranteed fixed benefit amount at your death (provided you make on-time payments on your policy for its duration). But whole life insurance also comes with a cash value component, which many companies tout as a “savings account” of sorts that you can borrow against while you’re alive.

Best for: People who are willing to pay more in premiums for a death benefit that lasts for life, as well as potential cash value from their insurance policy.

Universal life insurance

Universal life insurance is another type of permanent coverage that combines a death benefit with a cash value component. Customers with universal life can rely on the cash value of their policy for a loan, but they can also withdraw funds over time. The cash value also earns interest that’s based on market rates, which means the amount of interest you can earn will fluctuate.

This type of coverage also comes with some flexibility when it comes to your premiums. For example, you may be able to use the cash value of your policy to adjust how much you pay in premiums each month, or to cover your premiums altogether.

Some companies allow policyholders to adjust the death benefit on universal life insurance policies over time if you remain in good health. This can be useful if you want to increase your benefit amount as your family expands (though it requires paying a higher premium), or reduce it and pay a lower premium when your children are grown and your replacement income needs are less.

Best for: People who want permanent life insurance with a cash component and flexibility in their premiums and death benefit over time.

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Variable life insurance

Premiums from a variable life insurance policy are invested, with the cash value and death benefit rising or falling based on the results.
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Premiums from a variable life insurance policy are invested, with the cash value and death benefit rising or falling based on the results.

Variable life insurance is another type of permanent coverage that comes with a death benefit and a savings component. The main difference is that the premiums on variable life policies are typically invested by your insurance company in stocks, bonds and money market funds, with the goal of receiving a higher return.

Because of the investment component of variable life insurance, this type of coverage is generally seen as more risky. However, taking on more risk offers the opportunity for potentially higher returns. If the underlying investments within your variable life policy perform well, you may see the cash value of your policy and your death benefit increase substantially.

Best for: People who want the option to grow the death benefit and cash value of their insurance policy over time through investments.

Group life insurance

Group life insurance can come in many different forms, and it may include any type of life insurance coverage. The main difference is group life insurance is marketed and sold to an entire group at once — usually a cohort of employees at a company. Typically speaking, this means the group can get coverage without individual medical exams.

Depending on where you work, you may get group life insurance coverage extended to you for free as an employee benefit. However, the benefit amount is typically on the smaller side, so if you need a higher level of protection, you’ll want to supplement any group life insurance coverage with other coverage. You’re also likely to lose any group life coverage you have if and when you switch jobs.

Best for: Group life insurance can be valuable for anyone who receives it as part of their job benefits through work or a membership organization.

Supplemental life insurance

Where group life insurance is typically offered through an employer, supplemental life insurance is any additional life insurance you can buy to boost your coverage. Typically speaking, supplemental life insurance coverage is paid for by employees via payroll deduction.

One interesting benefit of supplemental life insurance is the fact that, like group coverage, employees can often bypass taking a medical exam and still qualify for a policy.

Best for: People who want to pay an added premium to increase the amount of coverage they receive through work or a membership organization.

Family life insurance

A family life insurance policy covers various family members with appropriately different types of coverage under one policy.
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A family life insurance policy covers various family members with appropriately different types of coverage under one policy.

The term “family life insurance” can mean many things, including any combination of policies that cover an entire family. However, some specific family life insurance policies are extended to provide comprehensive coverage for every member of a family structure.

Family life insurance policies typically include whole life coverage for the main breadwinner of the family as well as term life insurance coverage for their spouse and children. Policies usually include different benefit amounts on different members of the family so that you have appropriate coverage depending on which member of the family were to pass away.

Best for: Families who want tiered protection for each family member based on their income (if any), risk of loss and other factors.

Guaranteed life insurance

Guaranteed life insurance is a type of coverage you cannot be denied for regardless of your health. Of course, the fact that you’ll be approved no matter what makes guaranteed life insurance much more expensive than other similar policies. Further, guaranteed life insurance can come with other downsides, like a decreasing death benefit over time.

Because guaranteed life insurance is available to anyone who applies and pays the premiums, this type of coverage may only provide a death benefit large enough to cover your final expenses.

Best for: People in poor health who want to cover their final expenses but cannot get approved for other types of life insurance.

No exam life insurance

While most life insurance policies require you to take a medical exam before you get approved for coverage, no exam life insurance is afforded to individuals in excellent health. Providers are able to offer no exam life insurance based on complex computer algorithms that show which consumers are at a low risk of early death based on their age and other factors.

Generally speaking, no exam life insurance comes in the form of term life insurance. But because no medical exam is required, you may pay higher premiums than you would with an underwritten policy and a standard medical checkup.

Best for: Young and healthy individuals who want term coverage without the hassle of a medical exam.

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How much life insurance do you need?

When it comes to actually purchasing a life insurance policy, most consumers wind up asking the same important questions: How much life insurance do I need, and how long do I need my policy to last?

At the end of the day, only you can decide if you want life insurance coverage in place until the day you die or only for a specific term. However, the price of different types of life insurance coverage may ultimately help make this choice for you. After all, permanent life insurance premiums can easily set you back 10 times more than term life insurance coverage in the same amount.

Generally speaking, you’ll want to make sure you have enough life insurance coverage to replace most of your income during your working years. Or, if you prefer, you can follow the rule of thumb that says you should purchase a minimum of 10 times your income in life insurance protection (so $1 million in life insurance if you earn $100,000 per year).

As you spend time comparing different policies and deciding how much coverage to buy, you may want to consider the following factors:

  • How much you earn each year, including salary and bonuses.
  • Health insurance benefits and other perks your employer offers that would need to be paid for after your death.
  • Debts that your estate would be responsible for after you’re gone, including any personally guaranteed business loans, a mortgage, car loans and other obligations.
  • How many working years you have left before retirement.
  • Whether you want to pass an inheritance to your heirs.
  • The cost of your final expenses and disposition.
  • Whether you want an insurance benefit to cover the cost of college tuition, family weddings and other major life events after you’re gone.

Should you buy life insurance?

Life insurance is an important financial tool that can make sure your family is taken care of after you're gone.
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Life insurance is an important financial tool that can make sure your family is taken care of after you're gone.

Most people should have some type of life insurance protection in place, even if coverage is only enough to cover their final expenses. After all, your dependents and other family members will be left to pay your funeral costs and other final expenses once you pass away. Without life insurance, this could create hardship and stress on them at a time when your loved ones will be grieving your passing.

Still, many individuals and families make the choice to buy enough life insurance coverage to replace their entire income during their working years, and potentially their entire lifetime. Consumers typically do so in order to make sure their remaining loved ones don’t have to struggle if they pass away, and that dependents can continue their current standard of living. With enough life insurance, you may even be able to leave a legacy for your heirs.

Fortunately, life insurance — and especially term life insurance — doesn’t have to be expensive. In fact, based on our research, right now a 30-year-old man in excellent health could purchase 20 years of term life insurance worth $500,000 for less than $27 per month, and a woman at the same age and in the same health could buy this coverage for less than $21 per month.

Regardless of the type of life insurance you may want to buy, your best bet is taking steps to apply now — as in today. The older you get, the more expensive life insurance becomes. So don’t let life slip away before your family is protected, or you could easily regret it.

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