Investing: Term or Whole Life Insurance Of the many forms of insurance, one of the most important coverage policies for an individual to purchase for the benefit of their family is life insurance. Life insurance, like other forms of insurance, promises a large sum of money from the insurance company during a crisis in return for monthly premiums (payments) by the insured during the length of the coverage. Life insurance provides the policy holder the comfort and security of knowing that if they were to pass away that their family their family would receive the financial means to sustain themselves for a time. There are two general types of life insurance, whole and term life. Term Life Insurance
Term life is relatively simple and works much like other insurance policies wherein a subscriber pays a premium in return for a set amount of payout in the event that a claim is filed on the policy, i.e. the subscriber's death. On average term life insurance is substantially cheaper than whole life insurance. However, term life insurance premiums will increase as you age (you are a higher risk for a payout) and there will probably come a point in your later age when it is not good financial sense to continue to purchase term life insurance. At this point you are not worried about your family getting along without you (they are grown with families of their own) so there really is no need for life insurance anymore. Term life insurance is only renewable till the age 75 or thereabouts. Again, at this point life insurance is no longer a necessity as you are not worried
about providing for your family. To avoid the increase in premiums you can usually lock in premiums for 20 years or more by buying what is known as a "level premium" policy. Whole Life Insurance
Whole life insurance in general works quite differently from term life insurance. Premiums are higher on average for Whole life insurance policies since a percentage of the premium is taken and added to an investment portfolio. Each premium adds to the portfolio and gains returns over time. As indicated by the name whole life insurance is available to you for your entire life. The payouts in event of your death about the same as term life insurance but the premiums are so much larger because of the portion that is being invested. However, in all honesty you are probably wasting money if you are investing in whole life insurance. It would be better to purchase term life insurance and then take your excess funds and make investments of your own. This eliminates any fees you would pay in whole life insurance towards the investments. Whole Life insurance overall is a poor investment choice for the majority of individuals. When to Buy Whole Life
So you may ask why does whole life insurance even exist, when would I use it? This is a good question. It exists for two reasons. The first is that people don't understand the difference between whole life and term and end up wasting money on whole life because of influential advertising. The second is that whole life can actually be a good investment but only for a very particular client. If you have a large amount of money, (usually talking independently wealthy) and have exhausted other investment opportunities whole life insurance provides a taxsheltered cash account in which a portion of your premiums are invested. In this way you can avoid the taxes often associated with IRAs or other investment sources (the associated taxes vary depending on type of investment). If you are wondering if you should (you probably already pay someone to do this wondering for you) make sure to go to a well-known insurer like Northwestern Mutual to make these
arrangements Small, sketchy insurance companies selling whole life abound so beware. Understanding the basics of life insurance is vital for any person in who is trying to weigh the aspects of personal health insurance and life insurance. By understanding the difference between term and whole life insurance you can make a decision that will best benefit your family as well as your finances. Photo Pin: Alex Proimos, 401 (k) 2012, Mike Bitzenhofer