In today’s post I want to discuss factors to decide when choosing to get life insurance.
Life insurance is insurance that is paid out to the beneficiaries in the event the policyholder dies.
Generally, speaking there are two types: Term and Whole life.
Whole life insurance accrues a cash value with every premium paid. Premiums are the amount you pay. Since your premiums are being invested and less money is going to the insurance company, whole life insurance premiums are higher than term. The cash value of whole life can be withdrawn – depending on the contract’s terms- by the policyholder. If the policy holder dies, the beneficiary only gets the insurance amount, not the cash value.
Term life insurance doesn’t accrue cash value. As such, the premiums are cheaper than whole life. Term life contracts typically go for terms like 10 or 20 years. An example of someone using term life insurance might be something like this:
A 30-year-old dad is married with 4 young kids. He makes $150,000 a year and his wife stays home and watches the kids. He buys a $1,000,000 term policy for 20 years that way if he dies, his family will have some money. After 20 years, the policy ends. The children are now grown up and more capable of taking care of themselves. Also, the husband has more money saved, so if he were to pass, the family would be in better shape. All his premiums are gone, and he won’t receive anything from the insurance company.
Generally, speaking, it’s my belief that term is almost always better than whole life insurance. Many times, whole life is sold by greedy agents looking to make high commissions on the policies. Term is cheaper and yes you won’t ever get back your premiums, but insurance is there for a reason, to provide money in the event of a disaster.
This is a high-level overview of Whole vs. Term life insurance. There might be exceptions or other factors to consider as well. Please speak with a qualified financial professional before making any decisions.
In general, I believe that deciding to get life insurance comes down to responsibility. If you are 25, unmarried and have no debt, I personally see no reason why you need it- some might disagree with this. If you are 30 married with children and are the breadwinner in your family, you’ll probably need it- in my opinion.
Thanks for your time.
