Kinds of Life Insurance Policies

There are 2 Basic Types of Life Insurance; Term Life (or Temporary) and Whole Life (or Permanent).

Term Life is insurance set for a certain period of time, usually 20 or 30 years. This type of insurance is the most affordable, and is recommended by most Financial Advisors. Because it is so inexpensive, it allows the insured to put money into retirement or investment accounts that they would have been paying toward a Whole Life Policy.

This enables them to save for retirement as well as funeral expenses. The idea of Life Insurance is to be able to pay off debt in the event of an untimely death. The goal by retirement age is to have all debts paid off, have an estate built up, and be financially stable enough to enjoy life (hopefully not just get by) without having to work anymore. So then, what would be the point of Life Insurance at that age? It wouldn’t be necessary, so why continue paying for it?

Whole Life insurance is put in place for the insured’s whole life. There are many different types of whole life policies, but the differences usually deal with premium payments, pay-outs, and investments. The basic idea of a Whole Life policy is that it has combined Life Insurance with Savings. You pay a much higher premium, and eventually a Cash Value develops inside the policy. It usually takes 3 years for the Cash Value to develop, but then as it increases, you can begin to borrow against it, or use it to “pay for itself”.

So basically, you can take out a loan from money that you have already paid. They tell you that these loans do not have to be paid back. What they don’t tell you is that whatever amount you borrow will be deducted from the Death Benefit or Living Benefit when the policy matures at age 100. What they also fail to tell you until it is too late is that if you were to die, your family would have to choose between the Policy’s Death Benefit or the Cash Value. Whatever you don’t choose goes back to the company.

Deciding what is best for you and your family can be hard to do if you are not properly educated. Many people do not understand the different types of Life Insurance, and can sometimes be taken advantage of  by an agent who wants the bigger commission. My advice as a Financial Advisor and Insurance Agent is to always Buy Term and Invest the Rest.