Term vs. Whole Life Insurance
Low cost term life insurance vs. higher cost whole life insurance, which product works best? Term is the best option, but that does not mean you should never look at whole life insurance. Both products serve the same purpose and understanding the differences is important.
Term Life Insurance
Description, low cost term life insurance is just that. Term insurance is for a certain period. The most commonly known term policies are 5, 10, 15, 20, 25 and 30 year terms. Some life insurance agents say this is renting insurance. Remember, renting does serve a purpose. This period certain makes up the low cost term life insurance. Term insurance is pure life insurance.
Most people out live their term life insurance. In fact, less than 10% of low cost term life insurance is claimed. The reason is simple, the term ends before filing a claim. Low cost term life insurance is to protect the family from financial hardship if something tragic happened. You should be planning an exit from life insurance, just as your kids are planning a career for themselves. The exit strategy is the reason low cost term life insurance works well during you investing in retirement and becoming debt free.
Whole Life Insurance
Whole life insurance has two parts, life insurance and savings. The time period for whole life is just that, your whole life. Health and age determine the premium. Because the rate does not change over your life span, if done correctly, the insurance company must account for the older years and the payout.
Whole life insurance covers you young and old, more likely to pay out and has savings built in. Now you know why it cost more than low cost term life insurance. The saving options whole life insurance has cannot replace investing in mutual funds. Some agents talk about loans and tax-free money. Managing life takes enough time; do not add more to the mix. More whole life insurance policies go south trying to get money out.
The best whole life insurance policy covers your final expenses.
Cost vs. Savings
Whole life insurance vs. low cost term life insurance is about eight times higher per year. Say a term policy cost you $600.00 per year. The same coverage using a whole life policy would be about $4800.00 per year. The first seven to ten years the whole life policy will not provide any savings. If you put $4600.00 per year in a Mutual Fund, the saving starts immediately.
The emergency fund is always ready using Mutual Funds. You have surrender charges in the first seven to ten years using a whole life policy. Purchase a low cost term life insurance policy and invest the savings for retirement and emergency funds.
Every family should have a plan. The best way to help with this plan is ask, “If I died today what would happen to _____________”. Make a list to fill in the blanks. You will come up with how much life insurance you want and the term you need to have insurance. Remember, you do not have to get one big life policy. You can have a 10-year term and a 30-year term. It has to work for you and low cost term life insurance works.
The best life insurance policy is the one in force when someone passes.