FGHI.info

Term Life Insurance

Term is the best life insurance you can buy. Term insurance is purchased for a specific period of time and is the cheapest type of life insurance.

The most commonly available terms are 1, 5, 10, 15, 20, 25, and 30 years. And unlike permanent insurance, term insurance has no savings associated with the policy.

Since you are paying purely for life insurance (not life insurance and savings), you can generally buy a lot of insurance for relatively little money compared to permanent life insurance. This is a good thing because most people are either underinsured or they don’t have any life insurance at all because of cost. By being more affordable, term insurance helps you obtain enough protection to take care of your family should something unexpected happen.

Invest the difference

With the money you save buying term insurance instead of permanent insurance you can also start your own separate savings or investment plan. By keeping your investments separate from your insurance, you can access your own money without having to borrow it or cancel your life insurance coverage. You’ll also have full control over how your money is invested instead of being limited to what the insurance company offers.

This is approach is called buying term and investing the difference. If you invest long enough, you will build up enough
savings to become self-insured. Being self-insured means having enough savings and investments to take care of your family if you pass away. Another benefit to this approach is that once you have enough savings to take care of your family should something happen, you don’t need life insurance anymore. You can cancel your policy and save yourself from having to pay those life insurance premiums for the rest of your life.

Permanent Life Insurance

Poor returns on your savings
Depending on the type of life insurance you buy, there are many investment options available. In many cases, if you compare the investment options within the life insurance policies to the comparable investment options available if you invested your money separately, the insurance investments usually do not perform nearly as well.

You are better off keeping your savings and investments separate from your life insurance.

Possible loss of your savings or insurance
Again, depending on the type of permanent life insurance you buy, different rules could apply. Quite often when you pass away, any savings you had in your life insurance policy are lost. The savings you have accumulated are not always paid out to your beneficiary.
The insurance company often keeps that money for themselves.

On the other hand, whatever savings you take from your policy will often reduce your coverage by that amount.
If you have permanent life insurance now, you can check what your policy offers by looking for the death benefit amount showing in your policy. It’s usually noted on the first two to three pages. Or you could call your insurance agent or company and ask them directly. See if you get a straight answer from them.

You may have to borrow your own money
This is another concern with the savings portion of permanent life insurance. With many policies, if you would like to use some of your savings for something like a home improvement project, you may have to borrow your own money and pay interest on it until you pay it back in full.

To help illustrate this, imagine having a savings account at the bank that you have been putting money into faithfully for many years. One day, you decide to use some of that money to pay for home renovations. You go to the bank and fill out the withdrawal slip. When you give it to the teller, they say that they would be happy to give you your own money, but you’ll be charged 8% interest on it until you pay it back in full. It sounds crazy, but many permanent life insurance policies work this way.

There are two basic types of life insurance — that is, permanent life insurance and term life insurance. You want only one of these types of life insurance; let me show you why.

Permanent Life Insurance

The first type is called permanent life insurance. It’s name is fitting because this type of life insurance stays in effect until you pass away or you stop paying the premiums to maintain the insurance policy.

Most of these types of insurance policies also have various types of savings accounts tied in with them.

The three most common types of permanent life insurance are whole life, universal life, and variable life.

At first glance, having a life insurance policy that is in effect until you pass away and getting some savings built up at the same time sounds great. But here are some general reasons why I recommend staying away from any type of permanent life insurance policy.

High costs
Most permanent life insurance policies are quite costly for very little insurance coverage.

High service fees
Insurance companies and agents make a lot of money when they sell you permanent life insurance. So it is in their best interest to try to sell you this type of insurance. All those profits and commissions are coming out of the service fees you pay with your monthly premiums.