This seems like a straightforward answer but many middle aged people are asking this very question. The person thinking about life insurance needs to understand more or less their monetary situation as far as a current mortgage, protecting assets such as a business, anyone close being financially supported in any way, or any other bills that might be left to dependents. While life insurance can be used to support liabilities in investments such as a business; It is usually not recommended as a good way to invest your money because of the high cost for any options on return.
Life Insurance Explained
Life insurance is basically an agreement or contract made with an insurer for a safety net if death were to happen.The insurance company will pay a lump sum or maybe payments to the insured person’s family if a valid claim is supported by the company.
Types of life Insurance
Term and Whole Insurance are basically the two main types of life insurance and there are variations of each to explain. So what is term life insurance ? Term life insurance is the cheaper way to go when purchasing and provides coverage for a set rate and time. The only way it pays out is if you were to die during the agreed upon set time. Whole Insurance has cash value and is more costly than term insurance. It is designed to provide coverage for the insured’s entire life.
What is the reasoning of term life Insurance?
Term life insurance is pretty straightforward and very cheap compared to whole life. If you are not looking to have any additional options and want a simple solution to take care of your dependents in a set time; Then this is the policy for you in regards to your life insurance. Term life works by simply wanting the payout to happen during the time you have chosen and the amount to be enough to take care of your family. If it expires, then you will not receive anything and the money you have invested cannot be used.
Why buy whole term life insurance?
While whole term insurance is significantly higher than term life insurance; The return you can get is definitely more satisfying. Simply put, the money you invest builds tax-deferred cash each year, can be accessed or borrowed upon, the policy can be surrendered and cashed out for a portion, and is guaranteed for life. Some people might find it a negative that the Insurer is investing your money and can most likely pay your policy in full with the profits made when you die. However, it is nice to know that your money is slowly increasing and someone is guaranteed to get some of the investment.
When to buy Term or Whole Life Insurance
Term insurance is a great option to take on if you are looking for an affordable coverage for a short, set amount of time such as raising your children or something to replace your income if an accident were to happen while saving that nest egg. It also might be a good coverage if you simply want life insurance but cannot afford it.
Whole Insurance is going to be a good idea to take on if you will be leaving a sizable estate that will have a large tax, a dependent that is needing help for the rest of their life and cannot take care of himself, or any costs to your funeral. Some retirees also like to burn through their retirement money and if this is the case; Then a whole life policy makes a lot of sense because it still provides money to your beneficiaries for when you pass.
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