Need Life Insurance? Why Term Life Is Probably The Right Choice
If you are young and just starting out raising a family, don’t listen to life insurance agents if they try to convince you to buy one of the many types of permanent life insurance. While Universal life or variable universal, etc., might be perfect for people with complex financial situations, if you simply want the peace of mind that life insurance will provide, term life insurance is almost certainly right choice for you. Here’s why:
As you check pricing for policies you will notice that term life can be had for a fraction of permanent life policies. The reason for this is very simple. Term will cover you for the length of time for which the policy is in effect, as long as you make your premium payments. If at the end of the term you’re still alive, the insurance company is obligated to pay out nothing to you or your heirs. The fact is that the vast majority of people do outlive their term policies, reducing the aggregate expense to the insurance company of insuring people with term life, and this means that term premiums generally will be much lower.
Contrast this with permanent life, which normally does guarantee a payout to your beneficiaries (or back to you if you live to the age of 90 or 100). It stands to reason that permanent premiums would be higher for this reason, and they are. Also, what makes permanent life more expensive is that it tends to include aspects of investment plans. These “full-featured” insurance policies are often touted by agents as addressing both your insurance and retirement needs, but most financial planners consider policies like this to be inferior as investments. The problem is that the monthly premiums are so high that it leaves you very little opportunity to create your own investment portfolio that in all likelihood will have a higher return than than the “managed” portfolio in which your insurance company puts your funds. The high management fees will greatly reduce your rate of return.
It’s best to educate yourself with a good guide to life insurance basics, as well as talking to friends or relatives whose judgment you trust on investment matters before you commit to a policy. Insurance is no big mystery, but getting a little unbiased information will go along way in choosing life insurance that is best for you and your family.
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