A couple of days ago, I talked about whether insurance is necessary and came up with the answer of sometimes, depending on your situation. I briefly mentioned term life insurance and whole life insurance and as promised, here is a post with further information.
What exactly are these two products? Check out Insurance Comparison’s definitions (although you shouldn’t jump to same conclusion they did, if you go to the website!):
“Whole Life Insurance
Whole life insurance is a continual policy that is paid throughout the entire life of the individual from the moment the payments begin. These premium payments will remain the same and they are often quite a bit higher in cost than a term life policy. This is the major downside of a whole life policy. These types of policies actually accrue interest overtime and people can use this money for emergencies if they need to.
Term Life Insurance
A term life insurance policy is in effect for only a set period of time. The premiums are smaller initially, which is the main positive of this type. However, the the premiums increase over time and they do not accrue interest in the manner of a whole life policy. The individual cannot regain money spent on this policy unless the policy holder dies.”
What the Gurus Have to Say
Here is a quote I like from Wealth Pilgrim:
“The purpose of term life insurance is to protect your family for a specific time period. If you buy the right term life insurance, it does the job beautifully well.
On the other hand, whole life insurance has two purposes. The first is to protect your family. The second…is to make insurance companies and agents lots of money.
That’s why term life insurance is bought while whole life insurance is sold.”
Whole Life Insurance vs Term Insurance: The Takeaway
If you’re going to invest, you should do extensive research and then invest using an online discount brokerage by buying ETF’s that cover the broad market or through individual dividend paying stocks.
More details about dividend paying stocks-it’s a solid book! The Dividend Mantra Way: Achieving Financial Independence By Living Below Your Means And Investing In Dividend Growth Stocks
If you’re going to get life insurance, you should get the simplest, cheapest thing possible that will protect your family. In this case, it’s term life insurance which covers you for a set amount of money for a certain period of time, for a certain fee which you pay.
Finances: Simple and Easy is Always the Best Plan
Combining your investments and your insurance into one product is way too confusing and it helps the insurance company a whole lot more than it actually helps you. You are far better to just pay for term insurance, which is much cheaper than whole life and then take that extra money and invest it in the stock market yourself.
Make your money work for you and not line the pockets of some insurance company rep.