What is the Best Type of Life Insurance?
Have you ever visited the doctor and been prescribed medication without being seen? If so, there may be a class action lawsuit you should be joining in on! For the rest of us, the thought would be appalling. In fact it is downright illegal and considered malpractice of the profession. The same energy should be given towards any aspect of your financial planning. A good advisor should first be coaxing you to answer one major question; What problem am I trying to solve? Life insurance is so varied in its design and implementation that without properly examining your goals and vulnerabilities we would be performing a huge disservice to our clients attempting to make a blanket recommendation. What we can do is provide many of the common reasons one may find one policy more beneficial over the other to help move along the decision making process.
Term Life Insurance
Term is as the name implies, coverage given for a set length or term of years that once reached automatically cancels the policy. Because of its temporary nature term is per dollar much cheaper than any other type of life insurance. In such a plan you are literally only paying the cost to the insurer for taking on such a risk and nothing more. Traditionally, one would see benefit from term only if a death during the covered period has occurred. Recently, many terms have started to include additional coverage features attached to the death benefit called riders. These riders enhance the death benefit by allowing access to funds while the insured is living for things like critical, chronic, and terminal illnesses. These enhancements still come at quite the discount because they are attached to a temporary policy. If you are someone who has large amounts of debt (mortgage,medical,loans), dependents (income replacement) and a smaller budget to cover it all, term life would be a great type of plan to consider. It would allow you to maximize your coverage for the least amount of premium required. In a ideal world, as you pay off loans and dependents become independent, the coverage need lessens to the point where such a large policy is no longer needed and the policy cancels itself accordingly.
Whole Life Insurance
Whole life is yet again a plan that lives up to its name. Once issued and properly funded, a whole life plan provides permanent coverage on the insured. Over time, the premium payments slowly pay down the net amount at risk to the insurance company because every dollar of premium received is now a dollar less of death benefit the insurer is at risk of losing. Effectively the payor is slowly taking ownership of the plan and begins to accrue a left over amount of value within the policy called cash value. This cash value account will receive a annual interest rate and compound over time. Because of these benefits, whole life is far less affordable in comparison to term, you get less death benefit per dollar paid. If you desire to guarantee a death benefit to your family for final affairs such as payments for burial or estate taxes and feel that the temporary nature of term provides to much risk of outliving the coverage, whole life would naturally be where to look. Many also value the cash available as a benefit to be withdrawn after a period time when coverage is no longer desired.
As you can see, the two main types of life insurances would both require an asessement of desires and needs in order for a informed decision to be made. Neither is better or worse, they simply are designed to handle different vulnerabilities in the most efficient way. Send us a contact request if you decide one of these coverages could be needed in your life.
