Term or Life Insurance
Nobody really wants to think about this but it is an important factor in everyone’s life- the purchasing of life insurance.
It is a very satisfying feeling to know that when you pass away, your family will be taken care of financially. Funeral costs for a death can be upwards of $20,000 – it’s important to have that life insurance policy active and up to date. With a small premium life insurance policy your family will be able to cover those funeral bills plus be able to pay the household bills for several months after you are gone.
Oftentimes a $10,000 – $20,000 life insurance policy will be provided at no cost by an employer- for their employees- for the duration of employment. A life insurance policy can be purchased and maintained regardless of whether a person is employed or not.
Life insurance policy premiums will vary based on a few factors such as, age, sex, smoking history, health history and a few other key factors. There are also two different types of life insurance; there is “term life insurance” and “whole life insurance”.
Term life insurance is considered a “pure death benefit” and is the simplest form of the two. A term policy will last for a set “term” that you choose (this can be 5, 10, 15 years, etc.) for the policy and is very affordable. These terms can be extended at the end of the time period chosen.
Just some quick facts about a term policy:
- Term fits into a family that is on a strict budget
- Term fits well if you need just a set period of time covered.
- Term will provide security that your family can utilize those funds once you are gone.
- You will need to name a beneficiary for the term policy.
- Term policies are generally used only as income replacement funds
- The older you get the higher your premiums will be for all types of life insurance.
Whole life policies are a bit different than term. These are more expensive but they accrue interest similar to a basic savings account at the bank. Whole life policies will not expire until you expire.
Financial professionals most commonly will deter folks from purchasing whole life. The feeling is that term life is simply adequate enough for death coverage and the miniscule amount of interest returned on a whole life policy can be achieved by putting your money into your 401K, IRA, mutual fund, etc. Long story short, purchasing whole life insurance policies as an investment is a poor choice if in fact you are using it as a financial investment.
Cost example:
- $500,000.00 term life policy will cost a middle aged non-smoker in fairly good health anywhere from $5.00-$12.00 per month to maintain the life of the policy.
- $500,000.00 whole life policy in the same person will cost approximately $30.00-$50.00 per month.
Lastly, you can assure that either of these types of life policies will pay out the insured benefit amount of $500,000 at the time of death. The question lies in the difference of cost and is highly recommended to be utilized more financially efficiently in another form of earnings account.
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