Last week I wrote about the reasons you need to look into life insurance sooner rather than later. Now that realize your need for life insurance, it’s time to give you the practical tools to obtain it! In our next few posts we will walk you through a series on Life Insurance basics: what kind, how much, when to start, etc. This week we’ll start with learning about 2 types of life insurance.
Types of Life Insurance
There are two main types of life insurance: term life insurance and whole life insurance. You may also hear of a few other kinds, such as universal life or variable life, but it is most likely that you will fit best into Term or Whole Life Insurance. Therefore, we’re going to dig a little deeper into those.
Whole life Insurance is a type of cash-value life insurance, which is an investment for life. Part of purchasing a cash-value plan means that you are using your life insurance to fund a savings plan managed by the insurance provider. Put simply, there are two things to consider about Whole Life plans:
- You are making a permanent investment in your insurance.
- Your plan will be more expensive because it is doubling as an investment account.
It should be noted that the return on these investments is usually very low and the fees are very high.
Term Life Insurance is a policy that is only intended to provide coverage for a specified period of time. This means that you can take out a policy for only the years that you need coverage while your loved ones are dependent upon you. This policy does not include an investment into a savings plan, so your monthly payments are much lower.
So, Which Type of Life Insurance Fits My Needs?
Well, every family is very different and unique when it comes to its needs. So, we encourage you to talk to an agent about your family’s specific needs and circumstances. However, there are some general recommendations that can be made.
Many financial advisors, such as Dave Ramsey, strongly advise Term Life Insurance as the only option you should consider. There are some wise reasons behind this encouragement! The seeming benefit of the Whole Life policy is the savings plan. However, individuals would likely receive a better return through designating the money spent on the higher premium toward other investments outside of their life insurance policy. Also, the insurance companies often keep these cash values when the policy holder does pass away.
Additionally, life insurance does not need to be a permanent expenditure. If you reach a place in your life where you no longer have loved ones depending on you for financial stability, then life insurance is no longer a needed investment! Instead, put money toward other investments that will have a higher rate of return and become more profitable for you and your loved ones.
Even with this information, insurance policies can be very confusing. Henry Insurance desires to serve you by helping you navigate your options and policy providers to find the coverage that best fits you and your family. Please contact us for more information about what life insurance policy can fit your needs!