Shopping for a life insurance policy can be confusing and frustrating. There are many different types of policies with different rules and privileges. Premiums vary significantly across providers and product types.
One of the most popular types of life insurance is term life. Term life is straight life insurance without any of the bells and whistles. Whole life, on the other hand, usually carries an investment portion which grows in value and can be cashed out over time. Term life pays the face value of the policy at the time of death of the insured.
Term life insurance has both positives and negatives in comparison to whole life. On the positive side, the premiums are usually significantly lower than whole life premiums because there is no investment portion. Many individuals with term life insurance find that having a separate investment account allows them to have more control over both their insurance and investments.
The major downside of term life is that it has a limited life or “term”. It must be renewed at intervals, usually every 5 or 10 years. As you are older at every renewal date and may have increasing health issues, the renewal rates are generally progressively higher. Whole life policies last for just that- the whole life of the insured without having to re-qualify.
The amount of term life insurance you need depends on your circumstances and your family’s financial goals. Think about what income your spouse would have to replace if you died. How many liabilities do you have right now including your mortgage, credit cards and car loans? Would it make your spouse’s life easier to have those obligations paid off on your death? You also may choose to include college funds in your term insurance face value but a better option is to set up an education fund separately an contribute to it regularly.
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