Life insurance is one of the most important insurances you can carry to help protect your family against financial distress after an unexpected death. If your income or your spouses income is lost, the dynamic of your family's finances changes completely. If you have a home mortgage, car loans, outstanding debts, and tuition to pay for your children, you have a lot to cover. The reality is if the money isn't there, you will lose the ability to continue paying everyday expenses.
Term vs. Whole Life -
Term insurance provides a fixed death benefit amount over a specified period of time which can be 10, 20, or 30 years. For example, you may purchase a 30 year level term policy with $1,000,000 of value. In the event you suffer from an unexpected death, your beneficiary will receive that sum of the death benefit. Simple.
Whole life insurance is also known as permanent insurance. Whole life has a cash value component attached to it. Whole life covers you for the entirety of your life (100 years). The premiums you pay towards the cost of the policy gets put into a savings / investment vehicle and the other portion gets applied to the cash value. You can hypothetically borrow from your cash value in the policy depending on your needs, but there is typically interest paid on it. These policies are much more expensive than a term policy.
Our belief here at Summit is that term life insurance makes the most sense for the average person and most people need it. Life insurance should be simple and should provide a payout to sustain a normal lifestyle after the loss of a household income stream. The insurance should have only one function and that is to pay a death benefit to your beneficiary. The general rule of thumb for how much coverage you need is 10X your annual salary plus any debt obligations you have.
If you would like to calculate how much life insurance you need, click the link to see: Symetra's Life Insurance Planning Tool
Term insurance is the most affordable and simple type of life insurance. It allows you to purchase the highest face value for the least amount of money. Whole life can be beneficial in certain scenarios, but they are few and far between. They are much more expensive policies than term insurance and in order to reach the real potential of a whole life policy, you have to have a large sum of disposable money on a yearly basis to make them a worth while investment. The reality is most individuals don't have a lot of left over money to pump into a whole life product. If you ever need to borrow from your cash value on a whole life policy, there can be limitations. In addition to this, if you are looking for an investment vehicle, you would probably be better suited to contribute that money to your 401K plan or another diversified investment portfolio.
As insurance people saying this, it might not be the most popular view but we are honest and transparent here. Whole life policies are generally bad investments. At the point at which your term policy runs out, you should have built your savings up in other investment vehicles over time and tucked away a decent retirement.
We are fans of Dave Ramsay - See his argument with a life insurance agent and why he does not believe in whole life: Click Here
If you have any questions about life insurance or would like to discuss a quote of your own, please call or email us. With just a few basic pieces of information we can run illustrations through many different carriers and find the most competitive rates.