When it comes to choosing life insurance you have two basic options to choose from term life insurance or whole life insurance. These options have several different features, and they serve different purposes. It is important to fully understand each type of insurance before you make your decision.
Term life insurance is purchased for a specific period of time usually from one to twenty years. At the end of the term you receive no return on the money that you paid for the insurance, but if you die before the term is over, then your loved ones will receive the full amount of the policy. The rates for term insurance stay locked at the same amount, and are much lower than a whole life policy.
Whole life insurance lasts for your entire life as long as you continue to make payments on the policy. Additionally, you have the option of cashing out the policy and the money that you have paid into the policy at anytime during your lifetime. This will cancel the insurance policy, but may provide you financial help when you need it. The cost of whole life insurance is much higher because of this, and the rates of return on whole life insurance are usually much lower than normal investments.
When you buy term life insurance, generally you are planning on reaching a point where you will no longer need life insurance. This type of insurance should be used in conjunction with a good savings and investing program. You should also work on becoming debt free. Once you have a significant amount in the bank your family would no longer need the life insurance policy to continue with the same standard of living as they had before you passed away. Most people have term insurance until they hit retirement age and all of their debt has been paid off.
Although whole life insurance does offer the benefit of being able to cash out the policy most people would make more money by purchasing the term life policy and investing the difference on their own. If you already have a whole life insurance policy you may opt to keep it if you have had a serious medical condition that would make it difficult to find term life insurance. Otherwise you may want to switch your whole life for term. You should keep your whole life insurance policy in place until you have already purchased and been approved for a term life insurance policy.
When you purchase life insurance you are usually safe purchasing about ten times your annual income, some experts say eight percent will work as well. You should have enough to cover your debts and still have a sizeable amount left over for your loved ones to invest and then draw off the interest to live on. When purchasing insurance be sure that you go with a reputable company and that you shop around for the best rate.