Why Term Life Insurance is the Best Choice

Buying the right type of life insurance can be a daunting and confusing task. You will get opinions from people on either side on the merits and demerits of buying term life insurance and invest the rest or purchase permanent insurance with cash value. It is my opinion, most circumstances dictate buying term insurance rather than permanent insurance policies, including whole life, universal life, variable universal life, etc.

Why purchase life insurance? When you buy life insurance, it offers benefits to someone you care about, in case something happens to you. After certain intervals of your life do you really need life insurance? Once your children have finished their higher education and are in the workforce, it becomes somewhat pointless to have term life insurance. You just need life insurance for that period of your life that if something does happen to you, little Tommy and Tammy’s college education will be paid for, and your debts are paid (auto loan, credit card debt, home loan mortgage). The life insurance death benefit will offer your significant others a grieving period without worrying about carrying a huge financial burden.

Term life insurance is cost effective when compared to permanent life insurance policies. Also, term insurance expires after a certain period, hence the word “term” in term insurance. For example, if you buy a 20-year term policy, after 20 years your insurance coverage will expire. However, permanent life insurance policies offer continued coverage for life, as long as premium payments are made. But if you stop making payments to a permanent policy, you must have enough funds in the cash value portion of your life policy to cover the premiums for your entire life.

Amount of Life Insurance Needed

These are the factors to consider in seeking a life insurance policy:

• Short-term debt

• Long-term debt

• Car loan

• Mortgage loans

• Credit card debt

• Other financial debt

• Cost of college education for any children

Buy Term and Invest the Rest

Buying term life and investing the rest is a notion of purchasing a term policy with a lower monthly premium than a premium for a permanent life insurance policy. The money saved in premiums from the purchase of a term policy on a monthly basis can be invested by you overtime. Let us use an example:

A term insurance policy is a better choice compared to a universal life insurance policy that may have less cash value due to the higher cost of insurance and a true interest of the cash value of approximately 3 percent. If you were to purchase a term life insurance policy instead, your annual investment would be valued at $25,267.29 after 20 years. Of course, it assumes an annual rate of return of 8.0% with all of your annual investments happening at the beginning of the year.

Term policies are a superior option for most people. Permanent insurance is not suitable for most people; it might be suitable for very high net worth individuals, mainly for estate planning purposes. Estate planning is too complex to be covered in this article and any planning has to be done in consultation with a financial advisor.

Herein, term life insurance is simple and not complicated when compared to permanent insurance You can buy term and invest the rest into various investment options from stocks, mutual funds, to CDs, gold,etc. But the most important thing is that it is competitively priced.