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Insurance Overview: Whole vs. Term Life Insurance
By Molly's Brother | August 7, 2006
This is the third post in my “Insurance Overview” series.
I’ve covered the basics of health insurance and homeowner’s/renter’s insurance. This week, I’m going to briefly focus on perhaps the most dreaded of all insurance policies: Life insurance.
It’s tough to think about because it speaks to our deepest fears about the uncertain future. You are purchasing life insurance for one reason: to make sure your family is financially covered in the event that you are no longer there to provide for them. Or, more bluntly, in case you die, they won’t have too much extra financial stress.
Yeesh, right? Who wants to think about death on a Wednesday? But you have to.
Get educated. Do the research to know the different types of life insurance that’s offered.
Term Life Insurance
Term life insurance is exactly what it sounds like. It’s insurance that covers you for a specific amount of time (the term). You pay premiums on this policy for the entire term. Once the term runs out, you can apply for more insurance. Yet, if your health is poor you might have to pay higher premiums–if you are accepted in the first place. Generally speaking, term insurance covers you for a pre-determined amount of time. This is where you have to do the research and the work. Do you want to be covered until the children are up and out of the house? Out of college? Do you want to be covered until your retired? You have to figure out your financial needs. Once the term ends, however, your loved ones will not receive benefits if you die.
Whole Life Insurance
Unlike term insurance, whole life insurance covers you for your whole life at a fixed premium that is usually higher than the premium offered for term life insurance. With whole insurance, you pay a premium. That money goes two places. Some of it is applied towards coverage with benefits similar to term insurance. The other portion of the money goes into an interest bearing account. You can withdraw or borrow against this account. Some experts think that this is not money well-spent, as you would do better for yourself financially to focus your resources on investments and retirement accounts. (Also, universal and variable life insurance are types of whole life insurance.)
A Final Note
In researching this topic, experts may have had slight disagreements on what type of insurance to buy. What was nearly unanimously agreed upon was this: Don’t take out life insurance policies on your children. That money could be better spent towards the family’s future. But, again, do your research.
If you have a family, then Molly’s Brother’s Insurance Mantra still applies with a bit of tweaking: Don’t let your family be caught uninsured.
Topics: Insurance |