The most important comparison to make when buying life insurance is between term insurance and whole life. Here's what each one means.
A term life insurance plan is a simple way to get life insurance. A whole life insurance plan not only gives you insurance for the rest of your life, but it also builds up value that you can cash in or borrow against. Usually, it takes about three years to make any money, and even then, it's not a lot. Because of this, term life insurance is a lot cheaper than whole life insurance. People sometimes say that term life insurance is more like renting insurance than buying it. This is because, like with auto insurance, you pay the premium every month, quarter, or year to protect yourself against the risk that you might get into an accident (in the case of term life insurance the accident is death). In the case of auto insurance, you don't get the money if you don't have that accident. In the case of life insurance, you don't get the money if you don't die.
We all die, so it might seem like term life insurance is the best choice compared to whole life insurance. You figure that you'd always get your money back. The catch is that term life insurance ends at a certain time, and that time could come before you die. Term life insurance plans are only good until a certain age that has already been set. For many people, that age is 70, but it can go up to 80 for others. For those of us who need this coverage until we die, these plans aren't as good as whole life plans, which will cover us until we die.
Term life insurance is a better deal than whole life insurance if all you want to do is save money so that your young family won't be left without money if you die unexpectedly. By the time you're 70, it's likely that your kids will be living well on their own and won't need your money or income to stay alive. Obviously, if this is the only life insurance you have and it runs out before you die, your family or someone else will have to pay for your funeral. This is why whole life insurance is better than term life insurance. Whole life will be there as long as you are alive and will still be there when it's time to pay for your funeral.
So, it's possible that if you compare term life insurance to whole life insurance, the results will show that you need both. Many experts say that you should buy enough term life insurance to pay your family's bills for a certain amount of time if you die too soon. For example, you could choose a term that lasts until your kids are old enough to pay their own bills. These same experts also suggest that you buy a $7000–$12,000 whole life insurance policy so that your family will have money to pay for your funeral.
In other words, if you're 40 years old and your kids are 6, 8, and 10, you'll need term life insurance for about 15 years, until your youngest is done with four years of college. You might decide that you need several hundred thousand dollars of coverage because you have three kids and a spouse. A $10,000 Whole life policy, on the other hand, would be enough to pay for a good funeral and burial.
