There are two main types of life insurance: term and whole life. For many individuals, navigating the waters between these two types of policies can be confusing. Each type has very unique advantages and disadvantages.
Term v. Whole
A term life insurance allows you to choose the amount of coverage and the length of the policy. You pay your premiums and your survivors receive the payout if you pass away while covered. Whole, or permanent life insurance combines an investment product with life insurance, allowing you to receive a possible return on your investment over time, even if you are still living.
Term Life Insurance
While whole life insurance sounds like a good way to earn your money back, it may not be so simple. The truth is, for most customers, term life insurance is a better deal. You pay a low, fixed monthly cost based on your policy length and amount of coverage. It’s simple and inexpensive. Whole life insurance is generally much more costly, often five to ten times more than term life insurance.
Retain Your Investment
Let’s assume you select a term life insurance at $200 per year as opposed to a whole life insurance policy at $1000 per year. If you take that additional $800 you could have spent on a whole life insurance policy and invested it yourself, your returns would be much higher. This is a beneficial way to have your cake and eat it too. Receive an inexpensive life insurance policy, and retain your investment.
Anticipate Your Needs
When purchasing a term life insurance policy, the best way to determine how much coverage you need, is to determine your short-term needs. For example, if you have young children, anticipate weddings, college, or other large expenses. In addition, have enough coverage to pay off your house and any other debts.
Many individuals purchase a term life insurance policy that matches the length of his or her home's loan to protect the mortgage and enough coverage to cover dependents until they can provide for themselves.
Always buy insurance when you are healthy, before retirement age. When you get into your 50s and 60s, it may be harder to find affordable term life insurance. Life insurance is not the area to be skimpy, or to sugar-coat the truth. Be completely honest about any risky habits you engage in, if you pass away and the insurance company finds you were untruthful in your application process, your life insurance may be considered void, leaving your family with nothing. Provide for beneficiaries by being completely honest in your life insurance application and having adequate coverage. It may not be necessary to have a multi-million dollar policy, but have enough to take care of those who depend on you.