First, there's Tem Insurance. Here's why we buy it...
We buy term insurance for in case we die. We come up with a number that will replace the income that supports our loved ones. (A million dollar policy can be surprisingly reasonable). The younger and healthier we are, the more affordable term insurance is. And the younger we are, the longer we will need the term insurance. But term only goes 10, 20, 25, 30, or 40 years. So if a young family buys term when the income earners are 25, than they can cover themselves to age 55 or 65. As these income earners age, two things happen. The children, if there are some, over that 30 years, are probably out of the home by then. And they most likely have already attended school by then. So the needs are less. And the income earners are no longer 25, so they typically cost more to insure. Or they may have serious health issues by then making any life insurance unaffordable.
The best situation is that these folks have a permanent life policy, such as a whole or universal policy, in place so they can stay insured at an affordable rate. (More on that later). If not, and they are fairly healthy, a person at the age of 55 or older who’s term policy is expiring can purchase another term policy for 10, 20, 25, or even 30 years, but will probably buy less coverage. But then they will probably need less coverage, too.
In contrast, a family, say one in their 40’s, with the same young children have the same needs, but since they are starting out later they will have to cover themselves into their 70th year. It is going to cost them a little more than the young family, but surprisingly again, not much more.
The point of term is to have a large enough benefit for unforeseen events when an individual’s or family’s needs rely on the replacement of steady income.
Individuals are considered families, too. They may not have the traditional obligations that those with children have, but they may want to leave a legacy to a family member, an organization, or a college. Large term policies will cover those obligations richly, and whole or universal policies will ensure a legacy after death.
So we buy term insurance in case we die, and we buy whole life or universal life for when we die. Again, the younger we are when we buy it, the more affordable it is. Since permanent policies last an entire lifetime, they can be purchased for children and increased over time. The best, I think, strategy is to have a whole or universal life policy to ensure coverage throughout life, combined with a term policy to cover the years when expenses, such as mortgages, raising children, and college educations are still heavy obligations..
I work with multiple insurance companies. So when I run a quote, I have multiple offers for my clients. Call me at (310) 808-8714 or email me at firstname.lastname@example.org for a quote, or scroll down a little further and get a quote now from one of those preferred carriers.
Here’s the proper definition of Term life insurance - or term assurance is life insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is typically the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.
Term life insurance can be contrasted to permanent life insurance such as whole life, universal life, and variable universal life, which guarantee coverage at fixed premiums for the lifetime of the covered individual unless the policy is allowed to lapse. Term insurance is not generally used for estate planning needs or charitable giving strategies but is used for pure income replacement needs for an individual. Term insurance functions in a manner similar to most other types of insurance in that it satisfies claims against what is insured if the premiums are up to date and the contract has not expired and does not provide for a return of premium dollars if no claims are filed.
– from Wikipedia
Then, there is Permanent Insurance...
When I was eighteen, a friend of the family who sold life insurance suggested that I buy a whole life policy for $50 a month. He told me about how it would grow and how, when I was older, I wouldn’t have to pay on it anymore. “It’s not the only investment you will ever make,” he assured me, “but it’s a nice foundation.” He went on to tell me how I would appreciate that I had insurance when I was old, insurance that I would not have to pay for anymore, and that I wouldn’t have to qualify to get. “You probably don’t realize it now, but you won’t always feel eighteen,” he said with a smile while at the same time stretching, what he fondly referred to, as his “old back.”
That was thirty-nine years ago. I wish I had taken him up on the idea. My parents were dead set against paying for life insurance. They talked me out of it. In their older years, they may have wanted to have some so they could leave a nice pile of money behind, but by then they had health problems and insurance would have cost them too much.
I bought a policy each for my two boys, though. When they are my age they will have a nice benefit. Regardless of their health, which I hope is excellent. We can never be sure. But we can insure for it.
When considering Whole Life, you should consider Indexed Universal Life, too. The ways in which each grow over time are very different and should be compared.
A definition of Whole Life: Whole life insurance, or whole of life assurance (in the Commonwealth of Nations), sometimes called “straight life” or “ordinary life,” is a life insurance policy which is guaranteed to remain in force for the insured’s entire lifetime, provided required premiums are paid, or to the maturity date. As a life insurance policy it represents a contract between the insured and insurer that as long as the contract terms are met, the insurer will pay the death benefit of the policy to the policy’s beneficiaries when the insured dies. Because whole life policies are guaranteed to remain in force as long as the required premiums are paid, the premiums are typically much higher than those of term life insurance where the premium is fixed only for a limited term. Whole life premiums are fixed, based on the age of issue, and usually do not increase with age. The insured party normally pays premiums until death, except for limited pay policies which may be paid-up in 10 years, 20 years, or at age 65. Whole life insurance belongs to the cash value category of life insurance, which also includes universal life, variable life, and endowment policies.
And, there is IUL, Indexed Universal life...
Indexed Universal Life (IUL) insurance shares the coverage and premium flexibility of other universal life policies, but the crediting of interest is very unique. Indexed interest is linked to the performance of an external index such as the S&P 500. The cash value increases are linked to positive changes in the equity index. What if the index were to go down? If the index stays flat or declines, you will still receive credited interest equal to the annual floor. Indexed Universal Life insurance provides you the peace of mind of a death benefit protection, but also offers upside potential for your cash value accumulation which can be used towards many different financial needs such as income replacement, mortgage, other debts, supplemental college fund, and much more.