For hundreds of years, or at least for as long as financial talk radio has been around, financial experts have been fighting about life insurance. In one corner we have term life insurance and the other corner we have whole life insurance. And almost always, term life insurance wins out. Good thing nobody is fighting over the concept of life insurance in general, otherwise it would be a pretty long and bloody battle.
Unfortunately, life insurance isn’t one of those exciting topics
that people talk about at dinner parties or comedians joke about on their HBO specials, but it is still something that needs to be understood.
Let’s start from the beginning…
Unlike car or homeowner insurance, life insurance is not made mandatory by law. And sure, who doesn’t like to stick it to the insurance industry every chance they get (believe me, I am no exception), but in this case, denying them your business can really hurt you more than help you in case of an unexpected fatalities. You will spend more time kicking yourself that figuring out what to do.
What exactly is life insurance?
The point of life insurance is to keep your surviving partner living in the way that they are accustomed to instead of worrying about paying bills. The last thing you want to do while grieving is worry about money. And what’s even worse is that this feeling of instability and insecurity does not go away. It continues to grow until you have to give up your lifestyle (or remarry rich), unless you have the aforementioned life insurance.
So now that I have sold you on the necessity of the concept, the complicated bit can begin.
What are the different types of life insurance?
The easiest way to categorize life insurance is in two: Term and Whole. There are many differences between the two, but the simplest way to look at them is Term expires and Whole does not. Let us take a closer look at these differences.
Term Life Insurance
Term life insurance is easy to understand. You choose an amount of time for how long you want to be insured (this is usually until the house is paid off and the kids have moved away) and an amount of money for which you want to be insured (this depends on how much is left on your mortgage, how big your monthly bills are, and how much debt you have). Once the term ends, so does your life insurance policy. Easy peasy. By this time your debt has usually been managed and your house has been paid off, so you do not need a pig payout.
Whole Life Insurance
Whole life insurance is way more complicated. Although this type of life insurance does not expire, the monthly payments are usually way more expensive because part of the money is taken to insure you and the other part is invested into low interest investments for you. Why pay someone else to make minimal investments for you when you can do it better yourself?
The experts and I agree; term is the way to go. It is simple, inexpensive, and it gets the job done well.
This post was written by Tatyana Levin who is a recent college graduate, and avid financial planner, and a copywriter for InsureYes.com