Financial experts often recommend people get a life insurance policy. But alas, the advice is easier imparted that acted upon.
It’s often the case that people find it difficult to choose the right policy. Among their most common dilemmas is picking between term or whole life insurance and whether to invest more or not.
Let financial planner Charles Weeks clear the consequences of each choice so people can make the best one.
Two Primary Factors
The first thing people should do when preparing to avail a life insurance policy is to determine their budget range for the premium they’ll have to pay. The next is to know how much coverage they would need.
For example, the average (healthy) person between the ages of 18 to 70 pays about $67.88 a month for a $250,000 life insurance policy. It’s important to note though that the premium might be drastically different depending on the person’s overall health and lifestyle.
Knowing the Difference
The next question one must answer is whether they need term or whole life insurance.
These two aren’t the only types of life insurance but they are the most common. The main difference between them is that term life insurance coverage would stop after the contracted term is up.
On the other hand, whole life insurance would last until the person dies. In which case, the death benefit would be given to the beneficiaries.
One may also take the cash value of this benefit while they’re still alive.
To give people potential insurance policy options, Weeks ran different quotes with a $2,500 to $6,000 annual budget.
Putting this kind of money on term insurance for, say, three decades would earn one the benefit of peace of mind. But only during the insured period.
Once the term ends, an individual would’ve paid a total of $75,000 without much to show for it. Weeks describes this setup as ‘renting’ insurance.
On the other hand, spending $4,000 a year on premium life insurance for the same length of time would leave a person with $120,000 in premiums. The catch is that one would only get to enjoy it if they’re still alive after the 30 years are up.
One way to get around the said downside of term insurance is by investing the difference in the cheaper premium one pays for it. The growth of this money overtime might offer one a sizable financial fallback once the term insurance ends.