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need life insurance whole vs. term

Reasons Why You Should Buy Life Insurance

Most consumers don’t know much about buying insurance policies beyond auto insurance, and that’s because coverage is mandatory in most states. Otherwise, many people’s first experience is when a friend tries to sell them a policy because they’re working as an agent on commission.

It seems as soon as someone gets a license to sell insurance, they are out there hitting up every friend, family member and neighbor in the hopes of building a large client base and making money.

While it is always nice to help a friend, this is unfortunately how some Americans purchase life insurance. If you don’t have someone pushing you to buy a policy, you might not even think about it – you don’t buy it because you feel you need it, you’re doing it as a favor to someone else.

In reality, after understanding what life insurance offers, you will realize there are several good reasons to own a policy.

 

Do I Need Life Insurance?

need life insurance whole vs. termIf you land a job with a strong benefits package, you’ll most likely have the option of buying a life insurance policy. If you’re married and have a family, you’re probably thinking that having protection is more important than ever, and you are definitely right.

When you have financial dependents, or others who rely on you to provide for them, you absolutely need life insurance. Owning a policy alleviates the stress of what will happen to your family should something happen to you.

Insurance can protect your family in several ways, including:

  • Covering The Cost of Burial- Funerals are expensive – if you want more than just cremation, your loved ones are looking at a bill around $10,000 to $15,000. The cost of putting a loved one to rest can cause financial difficulty, which is the last thing you want your family to deal with after your death.
  • Taking Care of Your Children- Of course you want to make sure your children are taken care of after your death, and one way to care for them is to ensure they can afford a decent college education. Having extra coverage in your life insurance can guarantee this will happen.
  • Replacing Your Income- Should you pass away, it would be a shame for your spouse to have to take on a second job in order to continue paying for essentials, especially if you have children at home who need a parent around. If your spouse or partner is working more to make up for a second income, he/she won’t be around to raise the kids.
  • Covering Debts- After your death, your spouse will be held responsible for any debts incurred under joint accounts, such as a mortgage, credit card, auto loan, etc. A sufficient death benefit payout from a policy would help cover those debts.
  • Enabling You to Take Over A Business Partner’s Share- Say you have a participating interest in a business with a partner. Should your partner pass away, a life policy would ensure the funds to buyout your partner’s interests and provide liquidity to the family in their time of need – and vice versa.
  • Covering Taxes- If your will stipulates that your heirs inherit a large sum of money from your estate, your beneficiaries will be required to pay estate taxes. A death benefit could help cover and pay off those taxes without the need to liquidate assets to raise the funds.

 

Why you need life insurance and which kind to buy via @DrCabler

 

How Much Life Insurance Should You Purchase?

The amount of coverage you should buy depends on your present and expected future income and assets. After deciding what type of policy to purchase, determining how much protection you need is the most important part of the process.

Simply put, the death benefit should be enough to replace your income for a set number of years or pay off major liabilities, such as a mortgage. You want to ensure that your family can continue the lifestyle they are used to, as your death will be hardship enough. Check out this guide to help choose your death benefit amount.

 

Term vs Whole Life Insurance – Which Is Better?

In order to make that determination, first you need to know the difference between term and whole life insurance. Whole life premiums are expensive, ranging between 5 to 10 times more than term life rates, but the policies are permanent and offer an investment opportunity.

On the flipside, term life insurance is not guaranteed past the end of your term, which ranges between 1 and 30 years. Term life is cheap and flexible, but after the term period expires, you will still have to deal with annual price increases without the investment option.

Both term and whole life policies have their pros and cons, each relative to an individual’s specific needs and financial situation. Ultimately it depends on what you can budget for.

Generally, term life insurance is the most recommended type of coverage because it is cheap, flexible, and a 30 year policy covers your family through your most financially vulnerable years. The amount you save from a term life policy can be put into other investment opportunities that yield significantly higher returns than the measly 4% you will earn on a whole life policy.

Regardless of which life insurance policy you choose, be certain you pick one with enough coverage to accommodate your future needs. No advisor or investment professional has ever reported that their client regretted buying life insurance – the expense is worth it.

 

In Short

Life insurance is not some sort of gamble or financial scheme. Less than 5% of term life policies ever pay out, but when you realize that a death benefit payout is a result of your own death, think of it as a positive thing. Life insurance, like any insurance policy, should not be used as an investment. It is there to provide peace of mind and financial stability in case of tragedy.

Editor’s Note: Gary Dek has worked in investment banking and private equity. As a finance professional, he runs his personal finances like a business. He currently blogs at MyLifeInsuranceQuotes123.com, where he provides unbiased life insurance guides for consumers looking for the best, affordable coverage.

Photo Credit: David Hilowitz via Compfight cc

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