vs Cheap Term:
Which Life Insurance Best Fits You?
of whether a family has life insurance or not, very few are unaware
of the need for it. Many mistakenly assume that having it "on the
job" takes care of the need while others sign up for the first mail
order offer or give a check to the first agent who has something
that looks like a low cost/high value policy. Such a policy will
nearly always be a TERM policy, which isn't a bad thing as long
as you make sure it fits both your current needs and your future
expectations. The other most common choice is Whole life; young
families often turn away from Whole life because they can purchase
a Term for a fraction of the cost of whole life with two or three
times the face value. Blindly choosing "cheap" is nearly
always a mistake.
Level Term versus
The difference between Term and Whole Life is simple. Term covers
you for the selected time period, after which you will usually cancel
it. You don't have to cancel it, but the increase in price at the
end of the term is exponential. For example, a term policy for a
50 year old for $200,000 might cost as little as $500 per year.
That same policy at the end of 20 years will cost $5,000 or more
to renew for just one year. The price will increase each year after
the initial Term.
Whole life, on the other
hand, does exactly what it sounds like. It gives you a set face
value for your entire life–up to age 120 now for most companies.
Unless you purchase a variable product or a modified whole life,
you also get a premium that will never change. Each type of insurance
comes with a variety of riders available. If you live a long life
and need to have life insurance until the day you die, you will
spend several times more in premium to purchase a term and then
try to renew it or replace it with a whole life in twenty years
than you would if you started with a whole life in the first place.
Even though whole life premiums are higher than Term premiums, if
you purchase it while young, the rates are still very reasonable.
Finding the Perfect
Although no life insurance agent wants you to think about alternatives
to life insurance, the fact is, you may not need whole life. You
have to analyze your purpose for getting life insurance. If your
goal is to protect a growing family with enough money to pay off
a mortgage or finishing raising children in the event of your death,
and if you are putting money into a retirement plan that will be
large enough to pay for final expenses, then a Term policy may suit
your needs just fine.
If, on the other hand,
you want to have something that will grow in value, increase your
assets, provide a source for emergency loans, and create a legacy
for your heirs, then you definitely need whole life right from the
start. Remember, life insurance payouts are still tax free to a
beneficiary. Therefore, it will help provide your heirs with a means
of paying any taxes due on your retirement or estate. It can also
be used to put a grandchild through college, provide a living for
a spouse who may not be capable of returning to the work force,
and countless other benefits. In short, life insurance is for the
Regardless of what the
best agent may tell you, only you can decide what you want your
policy to do. However, you must decide carefully, as the decision
is costly to reverse in the future.
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