It can be scary and dangerous for the average person to try to figure out what kind of life insurance to get. Knowing the basics of the different types of insurance out there can help ease some of that stress. How do you decide between term life insurance and whole life insurance?
Most of the time, term life insurance has lower monthly premiums than whole life insurance. You can get more protection for less money each month. This kind of insurance is only good for a certain amount of time, which is where the name comes from. You buy term life insurance to cover you until your kids are grown, until you retire, or for some other set amount of time. During the life of the policy, you won't get any benefits from this type of insurance if you don't make any claims. This is also true of other kinds of insurance, like home insurance and car insurance.
On the other hand, whole life insurance is seen as an investment. Part of the money you pay each month is put into an account or investment vehicle that earns interest. This makes the money grow in value over the life of the person who bought the insurance. If you cancel a whole life insurance policy, the insurance company will give you back the value of the investment that has grown since you started the policy, less any fees. If you wait long enough, the interest on this kind of policy can grow big enough to cover the monthly premium. This could mean that you don't have to pay for insurance every month.
How do you know what kind of life insurance you need? Before choosing, you should know some of the main benefits of each. Most of the time, term life insurance has lower monthly premiums and more coverage overall. Most people can still invest the money they save on this type of life insurance instead of whole life insurance in things like mutual funds, real estate, or the stock market and get the same or a better return than they would on an investment in a whole life policy. Many people buy whole life insurance to save money on taxes or to plan their estates.
Even though knowing the differences helps, I think you should find an insurance agent with whom you feel comfortable and talk about which plan is best for you. When dealing with something like life insurance, which can be hard and complicated, there is no substitute for a good advisor.
