Many people know they should have life insurance but many don’t know how much coverage or type of policy they should have. The is term insurance and whole life insurance.
Life insurance is important if you have a family that relies on your income. Even if one spouse doesn’t work outside of the home, it is important for them to also have life insurance. Upon their death, you would have additional expenses to hire others to do jobs that they did such as taking care of your children and home.
Term life insurance is a policy that you pay premiums for a specified term such as 20 or 30 years, and if you die within that term, the insurer pays your survivors a benefit. Permanent or whole life insurance remains in force as long as you are paying premiums. Also, some of the money you pay in premiums accumulates as a cash value. This cash value can be saved for retirement, or you can take loans against it throughout your life.
With a whole life policy, after a number of years, some of the money you have paid in is yours to keep even if you stop paying the premiums. The prospect of combining life insurance with a way to save tax-deferred money for retirement is an attraction for many people. But there are some things to consider before signing up for a whole life insurance policy.
Whole life premiums are more expensive than term insurance premiums. Once you consider the fees, whole life insurance may not be as great of a investment as it appears. Only an expert can tell if a whole life policy is a good deal.
The interest rates received on whole life insurance policies is about five or six percent before fees. Depending on the interest rates, you may be able to get better interest rates with mutual funds over the long run.
The fees and commissions on whole life policies are quite high. Some agents may push whole life policies because some agents might make 30-40 percent of a term policy’s first year premium but they may earn 80-100 percent of a whole life policy’s first year premium.
One of the exceptions where whole life insurance may be a good deal is for wealthy families in their 30s or 40s, where whole life insurance may be worthwhile as an estate planning tool. You can create an insurance trust that pays estate taxes out of the policy’s proceeds and then pass the trust onto heirs.
As with other financial matters, it is important to research whole life insurance policies before getting it to determine if it a good investment for you.
What’s the Difference between Term and whole Life Insurance
Everyone knows they need insurance. You get the letters in the mail all the time for x amount of dollars you can have x amount of term or whole life insurance. Do you know the difference in the two?
Term life insurance is the most common insurance that you hear about. Term life insurance is set up to be paid in monthly payments. At different intervals in your age the cost of your policy will go up. Generally you receive a chart that explains how much your rate will increase and at what age. At some point in your coverage you will have the option to drop your coverage or continue to pay higher increasing premiums. Term life insurance has no cash value and no interest collected on the policy. The policy is only good if the individual who has the policy dies. The policy will then pay the beneficiary the amount of insurance the policy covers.
Whole life insurance on the other hand is a policy that once purchased stays with the individual for their whole life. The cost to have the insurance does not go up in most cases as long as the claim is paid up and not let slip. These policies are generally paid every year. Many of these insurances will collect cash value and can be cashed out for cash value at certain age groups. If of course you cash out your policy you also cash out your benefits. You may then not be able to lock in your rates with another whole life policy being these are the fewer policies you are ever offered. If you do find another whole life policy your price to take new coverage will not be as cheap being it is based upon your age at the time you take the policy. Many companies today allow for parents or grand parents to buy whole life policies for their children or grand children. The rates are locked in as long as the policy is maintained in good standing and may be cashed out often at the age of 21.
Of the two policies whole life is the best bet if you are young. Your premiums will be low and will last a life time. If however you are middle aged or older you may want to look into term life insurance. Despite the increasing premium you may be able to get this insurance cheaper than whole life at this time. Life insurance like any other insurance is costly but something that everyone needs. Some insurances you buy and never use but life insurance is one you can bet if you keep it one day you are going to use. The prices of funerals are not getting any cheaper and life insurance is really something that you can not afford to be without.