Should I Choose Term Life or Whole Life Insurance?
Once you know you need life insurance, it is important to buy the right type of life insurance. You have two basic options to choose from term life insurance or whole life insurance. These options have several different features and they serve different purposes. It is important to fully understand each type of insurance before you make your decision.
What Is Term Life Insurance?
Term life insurance is purchased for a specific period of time usually from one to twenty years. At the end of the term you receive no return on the money that you paid for the insurance, but if you die before the term is over, then your loved ones will receive the full amount of the policy. The rates for term insurance stay locked at the same amount and are much lower than a whole life policy. This is the most affordable life insurance option.
How Long Should the Term Be for Life Insurance?
Generally, the younger you are, the lower the amount of your life insurance premium, especially because you are less likely to be diagnosed with serious medical conditions. You can save money by signing up for a longer term because when you renew your life insurance, it is more likely to be more expensive since you are older and you may not be as healthy or you may be overweight. When you buy term life insurance, generally you are planning on reaching a point where you will no longer need life insurance.
This type of insurance should be used in conjunction with a good savings and investing program. You should also work on becoming debt free. Once you have a significant amount in the bank your family would no longer need the life insurance policy to continue with the same standard of living as they had before you passed away. Most people have term insurance until they hit retirement age and all of their debt has been paid off.
What Is Whole Life Insurance?
Whole life insurance lasts for your entire life as long as you continue to make payments on the policy. Additionally, you have the option of cashing out the policy and the money that you have paid into the policy at any time during your lifetime. This will cancel the insurance policy but may provide you financial help when you need it. The cost of whole life insurance is much higher because of this, and the rates of return on whole life insurance are usually much lower than normal investments. Many life insurance sales people focus on the investment portion of the whole life insurance policies.
However, the investments do not have a very good return when compared to the stock market or mutual funds. You may be able to earn more by investing the money yourself and save money by purchasing a term life insurance policy.
Although whole life insurance does offer the benefit of being able to cash out the policy most people would make more money by purchasing the term life policy and investing the difference on their own. If you already have a whole life insurance policy you may opt to keep it if you have had a serious medical condition that would make it difficult to find term life insurance. Otherwise, you may want to switch your whole life to term. You should keep your whole life insurance policy in place until you have already purchased and been approved for a term life insurance policy.
How Much Life Insurance Should I Buy?
When you purchase life insurance you are usually safe purchasing about ten times your annual income, some experts say eight percent will work as well. You should have enough to cover your debts and still have a sizable amount left over for your loved ones to invest and then draw off the interest to live on. When purchasing insurance be sure that you go with a reputable company and that you shop around for the best rate. Consider things like morbidity rate, because your insurance company will. There is no excuse for having for not having life insurance.
Take the steps you need to get coverage today.