Term Life Insurance - The Right Decision
Term Life Insurance - The Right Decision by Alan Winters
Term life insurance is by far the most efficient allocation of resources when purchasing life insurance. It is cheap, it is flexible, and you have control over its coverage.
Some financial advisors and insurance brokers will argue that a whole life insurance policy will give you death benefits, provide tax-deferred savings you can borrow against and cash value you can draw out at retirement, but what is the cost? You pay on going commissions, get a low return on investment and probably never really have the correct insurance coverage at the correct period of your life.
Term life insurance is a bare bones insurance policy which is what an insurance policy should be, just enough insurance to get the job done. Term life is a policy on a specific individual, for a certain amount of coverage over a specific time period or duration. You will pay a one time commission on the original sale, your premiums are constant and you know exactly how much your coverage will cost you for the life of the policy assuming the insured doesn’t die first.
With a whole life insurance policy you pay for an insurance policy and a savings account which grows tax deferred. The whole life policy lasts the duration of the insured’s lifetime, which may be unnecessary. Commissions are paid out of every payment creating a nice annuity for the broker, but adding nothing to the face value of the policy. And the savings account will grow tax-deferred, but at such a conservative pace it will never keep up with inflation.
It makes much more sense financially to access your needs and fears, insurance is suppose to give you peace of mind, and determine what your needs are. If you want insurance coverage until you retire, to replace your income should you die, buy a term life insurance policy of a term long enough to cover that time period, 30 years, 50 years. If you want insurance to cover your mortgage or a child’s education incase something happens to you buy a term policy of that duration.
If you want money when you retire take the money saved on the insurance policy and invest it in an investment that at least will keep pace with inflation. A whole life insurance policy offers you no control over what your investment is in, by using a term life policy you have complete control. If you are, or get into a tax bracket where tax-free or tax-deferred investments make sense then move your money into them.
Using term life insurance instead of whole for your financial planning will provide more appropriate insurance coverage when you need it and a better return on your investment.
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