Comparing Different Types Of Life Insurance
There are a couple of reasons why term life insurance is the most popular policy for young people just starting a family, and it’s not just because it’s the easiest kind of insurance to understand. As any good life insurance basics guide will tell you, you will pay much, much less for a given amount of coverage if you buy a term policy, versus other forms of insurance like the different kinds of ‘permanent’ life.
First a quick definition: term life offers you a defined amount of coverage, or payout amount, also known as the death benefit, in the event that you should pass away during the period for which you purchase coverage. If this unfortunately occurs, the payout would go to whomever you designate as your beneficiary, or beneficiaries, of the policy. In return for peace of mind that you buy, knowing that your loved ones are provided for financially in the event that you are not there, you pay a specified monthly premium, which normally does not change, for the entire length of the policy term. If you are still alive at the end of the term, the life insurance company pays out nothing.
Many people are unaware that statistically a large majority of people who purchase life insurance will outlive their policies, even 20 or 30 year policies. For this reason, life insurance companies are able to charge monthly premiums that may seem quite generous in relation to the payout amount that one may purchase.
Contrast this to different types of life insurance such as permanent life and its many sub-varieties, which guarantee a payout as long as the policy is in force. As a payout is assured with permanent life insurance, you can also count on much higher premiums for this kind of policy. They are so high in fact, that most people would be better off simply buying basic term insurance, and putting anything extra that they can save each month into an investment portfolio.
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Some clients say they want to be covered whole life, so what’s the use of term policies? well, insurance is a complex world and offers much more than a life insurance. When you are 30, your career just took off, your kids were born year ago and you hardly started paying your first mortgage, you have completely different needs than 58 year old guy, who lives with his wife, has some decent savings, his morgage is finishing and he is looking forward to retirement. While in the first case you need to protect your dependents, in the second case you want to be sure that YOU don’t become a dependent. Therefore it’s sometimes to switch to disability or long term care policies. That’s why term life for 20-30 years makes sense.
Take care
Lorne