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Should You Buy Term Life Insurance Or Whole Life Insurance?

By Edited Nov 13, 2013 1 0

Life insurance is a very important subject and should be a part of everyone's life at some point. There are basically two different types of life insurance, although called by many different names and different variations, life insurance basically comes down to term and whole life.  I'm currently in the industry and have helped several families put together a product that works best for them.  

What I've found is that if you're young and not exactly yet 25, then you are able to be a part of your parent's life insurance plan.  Once you are classified as an "independent adult" and are at least 26 - you may be considering life insurance for yourself....or at least you should be.  Most agents in my industry will probably push you towards whole life insurance...either because it's what they actually believe in or because whole life insurance pays the highest commissions for agents.

Nevertheless, an insurance policy should be about what product better aligns with your current financial stage in life and also fits within your budget.  There are many terms and risks to consider before choosing term or whole life - too many to name for the purpose of this article.  But in basic terms, whole life insurance is more expensive, lasts until you turn 100 (although there are policies that go even past this age), yet the premiums you pay never increase and includes a savings component at 3%.  Term life insurance is cheap, lasts for usually 30 years (depending on which policy you select), and does not include a savings component.

Here's where choice matters - a person at least 26yrs old can purchase a whole life policy with a $150,000 death benefit for about $130/month.  This sounds OK, since a person this young will probably not have a lot of expenses or responsibilities other than his/her self.  However, this individual will most likely not be making a ton of money in this stage of their life to be able to afford $130/month outside of the other bills/expenses they're paying.  In addition, as family comes along, a car, a possible mortgage, etc. this person will have to purchase additional insurance to make sure he/she has enough coverage in the case of an early death.

However, with term insurance a person of the same age (26) can most likely buy a 30yr term policy up to $150,000 for as little as $19/month or even cheaper.  This individual will be covered until he/she is 56yrs old.  In the event of an unfortunate death before the age of 56, this person will be covered for up to $150K and only paying approximately $19/month.  At the age of 56yrs, this person can apply for whole insurance at that point because they probably will have (or should have) less responsibilities, kids will have moved out, more money is in the bank, and hopefully the mortgage is or almost is paid off.  

So, depending on your stage of life, term insurance may be a better pick for you versus whole life.  Be sure to ask your agent what options are available and get them to explain why!  Like I said earlier - an agent makes more commission on whole life policies versus a term policy...so understand that their opinion might be a little biased.  

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