Life Insurance ABCs for Everyone
Life insurance is for old people, people with kids and people who can afford it right? Wrong. In this economy, life insurance is for everybody and the number of people who can afford to be without it is far fewer than those of us who need it.
The bottom line is, if you have debt that will survive after your untimely demise, you need to think about life insurance.
Parents need insurance to provide for their orphaned children. Old folks need life insurance to cover any outstanding debt they may leave behind and to leave some legacy for their descendants. Childless couples need insurance to help the surviving mate weather the inevitable financial storm created when a partner dies. And even single people need life insurance to protect surviving relatives from creditors who – even though parents and siblings aren’t legally liable for an individual’s debt – may gamble that they can harass survivors into covering a debt.
So what are the types of life insurance and how do you decide which is right for you?
There are two basic types of life insurance term and whole life. Generally, term life is for everyone. Term life monthly premiums are usually much lower than whole life premiums. You purchase the policy for a set length of time the “term” commonly 10, 20 or even 30 years. You pay your monthly premium, and if you die during the term, your beneficiaries inherit the specific coverage amount of the policy.
For most term policies, when the term is over you receive no money back. Some insurers will allow you to convert the policy into a whole life plan at that point, and others offer a hybrid term/whole life product that actually gives you a cash value at the end of the term (for a higher monthly premium, of course).
Term life is great for singles, childless couples and parents who want to protect their families for a specific amount of time (say, until kids finish college). It generally costs less and is easier to obtain than whole life. Some companies will even offer coverage without subjecting you to a health exam.
Whole life is generally more expensive than term, but has an investment component in addition to the death benefit. That means the policy accrues a cash value that you can draw on while you’re alive. People looking to make insurance a part of their overall investment strategy can benefit from whole life, since it’s a form of forced savings. However, when shopping for whole life, be sure you understand all the fees that may be associated with the policy you’re considering. Whole life policies must be “managed” by someone, because of their investment component, and that someone needs to be paid every year. That payment will likely come from your premiums or the interest the policy earns.
The cost difference will be the deciding factor for many people considering life insurance. If you’re in good health and relatively young and willing to submit to a detailed health exam it’s possible to obtain term life coverage for as little as $35 a month. Higher death benefits will boost the premium, of course. Even without a health exam, a relatively healthy person around 40 years old should be able to buy term life for $55 to $65 per month. Whole life usually begins around $100 a month, with prices increasing for higher coverage amounts, health issues and older policy holders.
The easiest way to obtain obligation-free quotes is to go online. Look for Web sites that offer quotes from a range of insurers; avoid a site for a specific insurer unless you’re certain that’s who you want to buy from. Lead generator sites offer the broadest range of quotes from a large number of companies.
Some will require detailed personal information from you before putting you in touch with a sales representative. Recently, however, more sites have been springing up that will offer you ballpark quotes based on basic info you provide. You can then narrow your search and request more detailed quotes from companies offering the best terms.