It’s easy to ask around for advice on life insurance, just like it’s easy to find people with opinions on how to successfully make money in the stock market. Asking questions and getting educated on topics like insurance is always a good thing, but the problem is that getting life insurance advice from nonprofessionals may very well result in conflicting advice and confusion on your part. You need to take it upon yourself to get a firm grasp on the basics: the different types of life insurance, the pros and cons of each, and the people for whom each kind of life insurance is the best fit.
This is not rocket science – none of it is difficult conceptually, and it could be argued that some good foundational knowledge on life insurance might be worth many thousands of dollars to you over the policy you eventually purchase.
The best sources of information when it comes to life insurance would include websites like this one, that are not overly commercial or filled with ads for specific companies or types of insurance policies. A life insurance agent who’s going to actually listen to the details of your situation before attempting to route you into one type of policy or another is also invaluable. Specifically, look askance at any agent who pushes you into whole life insurance before adequately explaining variable life insurance, universal life insurance, and variable universal life insurance.
As well-meaning as friends and relatives are, is very easy for a layman to confuse the choice that was best for him with the best choice.
Term life insurance advice
Term life is the cheapest and most straightforward life insurance, with clearly defined premiums, payout amounts, and policy duration. The real downside with term life insurance is that it opens you up to the possibility of being in your 50s or 60s, after the policy is finished, without any life insurance at all. You can still get a new policy at that age, but it will be expensive, possibly prohibitively expensive. The way around this situation is to, when you take out your original term policy, make sure that it has a rider, or supplementary addition, that will enable you to either extend the policy or convert it to a whole life policy at the end of the original policy. Coverage like this, for most people, is preferable to whole insurance especially, because of the much lower premiums that you pay, more than anything else. These lower monthly premiums will hopefully leave you with some money each month towards building an investment portfolio. This nest egg in turn, after 20 or 30 years, will most likely be worth more than the death benefit payout that whole life promises you.
Whole life insurance advice
The best advice for many people regarding a whole life policy is “don’t buy it”. Whole life has a guaranteed payout, regardless of when the insured person passes away, and there is also a “cash value” amount associated with the policy, against which the policyholder may borrow. Agents will also trumpet the fact that whole life can be viewed as more than just life insurance, that it can also be viewed as an investment, or even a retirement plan.
The problem is that there are miscellaneous fees and expenses charged by the insurance company that eat into your yearly return, making it hard to justify the higher premiums that you pay in relation to the amount of your death benefit. Some people feel secure with the defined nature whole life insurance, and with the guaranteed payout. Let’s face it, if whole life didn’t make sense for at least some people out there it wouldn’t still be sold. However, in light of the alternatives you have with term or other forms of permanent insurance, declining whole life and choosing to be a little more proactive about your finances will be hugely beneficial to you in the long run.
Whole life is only one form of permanent life insurance i.e. policies that have a guaranteed payout. Other types are variable life, universal life, and variable universal. This life-insurance guide covers each of them in detail elsewhere, but the common elements that they all have relative to simple whole life is that they give you greater control over the previously-mentioned cash value amount, and flexibility as to the amount of your payout and premiums as your needs change over time. Now, they also usually involve a degree of risk that term life or whole life does not have, because you’re allowed to put a portion of your cash value amount into a wider range of investments such as the stock market, which will always involve some risk.
Life insurance advice is easier than ever to obtain via the Internet nowadays. Just make sure that the sources from which you get your information do not have commercial biases that unscrupulously attempted direct you into one form of insurance or another, without giving you all the facts.