Life Insurance 101
Insurance in general can be a very confusing thing to grasp. Especially life insurance and all the different types in the market. I will be the first to admit that I was not the least bit interested in it or anything related to it. After losing my mother in law to cancer and having to bury her without any final expense insurance I can tell you my opinion has changed drastically. I believe in protecting your loved ones left behind.
You know that old saying that you have to compare ‘apples to apples and oranges to oranges’ well it pertains to insurance plans also! So many people get confused by Whole Life versus Term Life insurance. I did not know the difference until I went to “insurance school”. By definition whole life insurance is life insurance that pays the benefit upon the death of the insured, it accumulates cash value, the price never increases and it never cancels. The only thing you have to worry about with a Whole Life policy is making sure you pay your premium every month. If you are concerned with paying for funeral costs, a whole life final expense policy is the type of insurance you need.
Term insurance does just what the name suggests…it terminates at a certain point in time. The definition of term insurance is a life insurance policy that provides coverage for a certain period of time or a specified “term” of years. The premiums with term insurance can increase and no cash value with accumulate. I think the best way to think of term versus whole life it to think of owning versus renting. Your home that you purchased will always belong to you as long as you pay your mortgage. I have seen many seniors who paid for years on term insurance policies only to find out that the policy was terminating when they turned 80. Term is great for younger healthier people but not for the senior market.
Since the price of Whole Life insurance is locked in you can budget. The price is normally higher than Term because it is permanent insurance. Term prices start out lower and increase over time. Less than 3% of term policies pay out and the deaths are normally related to accident and injury. When pricing insurance remember what I said about apples and oranges!
