The desire to provide some stability to your family or loved ones is a natural feeling. The challenging part is figuring out how to do. Life Insurance may be some thing you heard about while applying for benefits at work or heard "grown-ups" talk about but may not know much more than it pays a certain amount if you pass away. Life insurance is NOT just for covering burial expenses. It can help you build wealth while you are alive, cover college tuition for your kids, and supplement retirement income.
Some types of life insurance you may have heard about are :
Term
Whole
Universal
Guaranteed
Indexed
Variable
The starting point for most people it is to understand TERM vs WHOLE life insurance.
Term Life Insurance
Term can be explained as a life insurance policy that has an expiration date that you set up when you purchase it. Lets say you have a 30 year mortgage on a house and you want to make sure that house stays in your family in case you pass away. You can use a 30 year term policy to cover the mortgage in case you pass away.
The upside to something like this is the price. Term policies can have high face values for low premiums. As an example a very healthy 30 year old male can get $500,000 in coverage on a 30 year term for about $70 per month. After 30 years the mortgage is 0 and there is less of a concern.
The down side is now you have no coverage, you are 30 years older, and possibly had some medical concerns along the way. This changes your insurability and can drastically change the face value for the price. As an example a 60 year old male in excellent health would pay about $150 per month for $30,000 in coverage.
Whole Life Insurance
Whole life insurance stays "in force" as long as you keep paying into the policy active. The policy also accumulates a cash value as you continue to pay into it over time. The cash value is in addition to the death benefit.
A whole life insurance policy is a good way to make sure you'll get something out of it for more than just paying burial expenses. If you keep paying your premiums there will be a death benefit when you die, no matter when that happens. For this reason, whole life is sometimes called permanent life insurance. Also, as time goes on your policy may build up a cash value. You can borrow against this cash value or cash it in (this would mean no more death benefit).
The top disadvantage of whole life insurance is that it is more expensive than term life insurance. The reason for this is because the insurance company knows for sure it's going to have to pay a benefit eventually where as in term the life insurance company is using statics and trends to calculate the chances of a pay out.
If you made it this far thank you for reading and please consider subscribing. My future posts will address the other types of insurance and get into more in-depth strategies on how to leverage your life insurance policies for other life's challenges.