Life insurance is incredibly important when it comes to making sure our loved ones are left behind in safe hands in the wake of our death. However, the nuances between the varierty of insurances available can often make one’s head spin. It is for this reason that I will address some of these nuances in an attempt to make the convoluted and complicated world of hypotheticals easy to understand.
Here, I will be discussing both term life insurance and permanent life insurance. Term is a bit more simplistic and also boasts the lower cost. However, more of us have been exposed to whole life insurance since it has more publicity behind it.
Term Life Insurance, as the name hints, only covers a certain amount of time, a term if you will. Occasionally, you may hear this sort of plan referred to as “pure life insurance” since it’s really only supposed to protect your dependents. Terms can last anywhere from one to thirty years, yet the most common is 20 years. Generally, the premium does not increase or decrease throughout the contract, but of course every plan is its own and so it behooves you to make sure that that it is the case should you decide to move forward with a term plan.
For the record, you should pick a term plan for the years your dependents would be the most, for lack of a better word, dependent on you. This way, in the event that the worst happens, your family is provided for. Ideally, the payout they receive will be the equivalent of your current income so as to provide for the smoothest transition possible should you suddenly not be around.
This sort of plan is permanent, and has you covered from the start of the plan to the end of your life. This said, there is an investment involved that is titled the “cash value” of the plan. This cash value grows at a slow and steady pace and is tax-deferred so you won’t have to pay any percentage based on its gains. However, you can borrow money against the account or even forfeit the policy for cash. However, if you don’t manage to pay the plan back, with interest, you will decrease your benefits until you surrender the entire policy and the death benefit with it.
Frankly, as a whole, whole life insurance is more straightforward than term plans in that the numbers behind it don’t change. Yet, even though this is the case, the plans are typically more expensive, and although offering more benefits than term, they generally cause overbuying as well. Actually, as I mentioned in a previous article, this is because when we grow older we need less benefits, but as stated above, the numbers with whole life insurance plans don’t change. So even when you have less financial obligations and your kids are moved out of the house, you are still paying the same premiums.
This all said, it is up to you to decide which plan to pursue. Of course, every individual has unique circumstances that dictate which plan is best for them. In my personal opinion, you should always be sure to consult a professional before you commit to a plan, and remember to shop around. Insurance companies offer different pricing for different age groups and different policies, so make sure you weigh your options.
