Let’s face it… we hate to dwell on our pending physical demise, but barring a miracle, we are all going to rest in peace someday. And since we know that those we leave behind will be stuck with the funeral and death expenses, it is wise to purchase death insurance. Yes, DEATH insurance. The purpose of life (DEATH) insurance is to protect those you love when the time of your of death arrives.
So, it is not a question of “should I pay for a life insurance policy?” – because frankly, unless you have no debt, and you are sure you won’t incur any debt (and if you have pre-paid your final expenses), you should absolutely obtain a life insurance policy. However it is a question of which type is best for you. Here’s the simple answer: Term life insurance is best for most everyone. There are exceptions which will be discussed shortly.
Here’s a plain English summary of term life insurance: Your policy is in force for a specific number of years, up to 35 years, depending on the company you choose. The premium is fixed for the entire term, and is calculated according to your age, your smoking status, and your overall health record at the time of signing the policy. Let’s say, for example, you are a 45 year-old male, a non-smoker, in excellent health. Your saliva and/or urine tests prove that your are a perfect specimen of manhood. You choose a 20-year term policy, $200,000 death benefit, and the premiums are calculated to be $90 quarterly. Near the end of the 20 years (Congratulations, you are alive and well – whew, what a relief), your policy will be up for renewal. At this time, you are still a perfect specimen of manhood, but you are a whopping 65 years old! Just kidding… but it’s no joke that your new premium will be a little higher, since impending doom is just slightly closer. The good news is you are paying premiums at a fraction of the cost during your lifetime of what the death benefit to your family will be – $200,000. It’s simple: you pay, you die, the company pays your beneficiary. Keep in mind, that after your term has expired, you have paid the set premiums, and you will not receive any dividends.
Let’s now attempt to wrap our heads around the concept of Whole Life Insurance. It’s known by many aliases, by-the-way, so don’t be fooled. Universal Life, Modified Grade-able Life, Modified Whole Life, You Bet Your Life, Not On Your Life, and several others. Firstly, Whole Life Insurance is something for which you pay (ready for this?) for your Whole Life. Hence the name, whole life insurance. Whole life is touted to be a life insurance policy with an attached savings account. Hmm, sounds absolutely dreamy. (Sarcasm intended). But be cautious: whatsoever you pay for, may not be what you reap. You, Mr. or Mrs. Consumer, may not be making the money on that life insurance savings account – not for many years. I’ll give you two guesses who makes the money, and the first guess doesn’t count. The Insurance Company makes the money. To make matters worse, they even let you borrow your own money (it is YOUR savings account, is it not?) and you can pay it back with interest. What is wrong with this picture? Read your policy carefully and be sure you are making money, from the first day your policy is in force. With a whole life insurance policy, it is true that the premiums are fixed for as long as you keep your policy, but it is also true that those life insurance premiums are up to three times higher than term life insurance premiums. When all is said and done, if you are one of the lucky ducks who lives to the ripe age of 100, your policy will mature, but only after you have paid for it twice! (In my humble opinion – No, thank you.)
Having said this, if you are between the ages of 80 and 95, and you do not have life insurance, term may not be the best for you. Term insurance is only applied until the age of 95, and it will be expensive for that age bracket. There are whole life companies that will have some options, for up to $15,000 in coverage for you. It would have been best if you had saved and invested smartly over the years, and by this age, you would’ve amassed a fortune for your family to pay your final expenses. But, no crying over spilt money. There are guaranteed whole life insurance options for you. You’ll have to really hunt for something affordable.
If possible, plan ahead for your family without needing to purchase life insurance. If you’re currently the owner of a whole life policy, switch to term life insurance, and invest the premium difference in mutual funds. At least then you will have better control of your own money!
