First what is term life insurance? Life insurance is a contract between a life insurance company and a policyholder that states if premiums are paid over a certain period, upon your death, a beneficiary will receive an agreed-upon amount settlement. Term life insurance, in essence, is a life insurance policy that is in effect for only a certain amount of time. Other life insurance policies such as Whole Life are contractual agreements that span your natural life or up until the age of 100. Whole life insurance policies are considerably more expensive in terms of cost than Term Life Insurance policies.
Insurance is a must to protect your family’s ability to maintain a stable living and survive without your yearly or monthly income. It is suggested by many financial advisors that a term life insurance policy should pay out the approximate value of 10 years of your combined income. Using the 10-year replacement income as a standard, a term life insurance policy will cost less and 1/3 of that of the same whole life insurance policy.
You should be advised that a term life insurance policy is only in effect for a certain period, and the coverage is then terminated. What financial experts suggest is to take the difference between the cost of a term life insurance policy (cheaper) and the cost of a Whole Life insurance policy (more expensive) and apply the difference to an investment vehicle such as the stock market or mutual funds. The difference between the term life insurance policy and its counterparts can be as much as $1000-$3000 a year based upon the age of the policyholder.
If you take the term life insurance savings of let’s say $1000 a year and invest that money in the stock market over 25-35 years, the result could be in many cases higher than the term life insurance “Face Value” or payout upon the policyholder’s death. Many insurance brokers attempt to push a variation of whole life insurance policies upon their customers, not only because of the high commission payouts they receive, but they play into your fears of losing everything and leaving your family in financial ruin.
They rarely tout the benefits of term life insurance unless it is their only true sale. Whole life insurance does have its own set of benefits. However it should not be used as an investment vehicle, or the only true source of survivor benefits and should only be included as a smaller portion of your full insurance coverage. Use term life insurance and invest the savings from a more expensive policy, and in the long term, your family and survivors will have more, rather than less.
