Life Insurance: Term and Life

It is important to understand the different types of life insurance. There are two main types: term and whole life. Term life insurance is insurance that you buy for a set period of time, and then it expires. Whole life insurance is what you buy to cover you for your entire life. As long as you pay your premiums, whole life insurance won't expire. There are pros and cons to each type of life insurance, and what you get depends upon your needs.

The importance of life insurance

Before we getting into the basics of term life and whole life insurance, it is worth noting that you should get life insurance if you have people counting on you for their economic well-being. Life insurance is actually a policy against your life. It doesn't do you much good, but your children and spouse (and dependent parents, if you have them) will find it immensely helpful. If your spouse works as well, it would be a good idea to make sure that he or she is also covered by life insurance. How much coverage to get depends on your needs. The rule of thumb is to get coverage to the amount of between five and seven times the amount of your after-tax income for a year.

Term life insurance

If you are looking for the best bang for your buck, term life insurance is the way to go. The premiums are lower, and they remain set for the entire term, which is usually 10 or 20 years (although there are also 30 year plans). You can usually get a large amount of coverage for a few dollars a month. This is very helpful for primary breadwinners with young families, as it creates an affordable safety net for the family.

Whole life insurance

I'm going to include universal life insurance in the whole life category. For all intents and purposes, these insurance plans have basically the same features. Whole life insurance does not expire. It is also more expensive than term life insurance. But many whole life and universal life insurance plans come with cash-building opportunities. You can turn in your policy before you die and get the cash accrued from the policy. However, while this can be a nice little investment, insurance plans rarely build cash at a substantial rate, so you may not get much back.

Combining the two

Some people combine the two. This can be an effective method of life insurance. The term life secures your family while it is growing, and the whole life insurance will ensure that you still have coverage when the family grows up and the term life expires. Also worth noting: some insurance companies now offer premium refund programs that can result in getting some of what you paid in back when you cancel the insurance, or it expires.

For more information on life insurance, you can visit insure.com.


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