Most people want to know their families will have a secure financial future. When you start planning for how you’ll care for your family years from now, it’s likely that you will consider a variety of options. Life insurance should be among the possibilities you study.
Life insurance protects your assets and offers you a chance to help keep your family in a comfortable lifestyle after you’re gone, or even assist a grandchild with paying for a college education. Depending on the life insurance you choose, you could even draw cash from the policy in the event of an emergency or a promising opportunity.
There are two basic types of life insurance: term life and whole life. People value the two for different reasons, and they offer diverse benefits. Each of them has a different set of advantages and disadvantages that you have to weigh. Here’s a little more about the differences.
Term Life Insurance
Term life insurance is life insurance for a set amount of time, or term (10, 20 or 30 years). If you die before this time is up, your beneficiaries will be paid the face value of your policy. This investment option comes at a lower premium cost because the cash value of the policy does not increase with time, and is often more in tune with a person’s budgetary restrictions.
Whole Life Insurance
A whole life policy lasts for as long as you live. Your beneficiaries will receive a payout equivalent to the value of the policy you purchased, plus interest and other cash-deferred amounts. Life insurance rates are more expensive for whole life insurance policies, but the returns can be much greater if you have the time and financial resources to devote to building this resource. You can also use the savings you build here for other purposes if you choose, and while you are still alive.
What should you choose?
The right form of life insurance depends on your needs and goals for your future. Those with money available to spend might benefit from a whole life policy and the effects it can have on their estate planning. Term life policies are a little more flexible if your budget changes, or if you have other changes you encounter with the passing of time.
Term life insurance is going to be the cheaper of the two options, but is cheaper always better?. These policies will save you money, but don’t have the added benefits of accumulating cash value. One thing that most financial experts will tell you is to buy a term insurance policy and then invest all the money that you save, this may work in a lot of cases, but it’s not always the best option.
Whole life insurance provides more of an “investment option” with its cash-value benefit. With these policies, the plan builds up value inside of it that you can use later to borrow against if you need it. You could use this money in case of an emergency or to invest me money. A lot of people like to use whole life policies as an investment because the money grows in the policy tax-deferred. Meaning that you won’t pay taxes on the interest. This is a great way to avoid paying more taxes than you need.
The best advantage to a whole life insurance policy, is the fact that your loved ones will see the return on your investment. Sure, you get put money into the stock market and hope that your children see the money in the future, but you never know what is going to happen to those investments. Life insurance is one of the few investments that you can be positive that someone will see the return on.
Ultimately, you may find that a financial adviser or other professional will be best suited to help you choose the right policy to help fulfill your goals. A trained individual will know how to look at your needs, assets, and other factors to appropriately counsel you as you map out your future. They will be able to help you decide between investing what you save, or paying a little extra for a whole life policy and use the cash value.
Regardless of which type of life insurance you buy, it’s vital that you purchase a policy. These policies are not only a good investment, but a safety net that you can’t afford to not have. And could your family afford for you not to purchase a life insurance policy? An accident could leave them paying off many expenses in your name.
Would your spouse be able to pay the mortgage? What about the car payments and the student loans? If you sit down and think about it, there are thousands of dollars of debt that you would leave behind. The idea of leaving your family with a stack of bills they can’t pay for is terrifying. This is why the benefit of life insurance is so important. It allows your survivors to quickly pay down debts and takes some stress out of the grieving process.
One way to look at life insurance is as an investment to your loved ones. Sure, you might not see a ton of return on your premiums, but your family will. For your family, this is one of the best purchases that you can make, regardless of what type you buy.
In most cases, life insurance policies are more affordable than most applicants think. Depending on the size of the policy, your age, and your health you can easily fit a policy into your budget.