What I can’t stand is people who claim whole life products are worth it, so much that after I showed mom that it’s going to rip her off in the long run, her insurance agent plus her husband came over to her house and convinced her otherwise. I can’t stand people who gang up on folks like that, but what I can’t stand even more are people who can’t exercise a bit of common sense in understanding which is better.
The purpose of life insurance is to secure an income. When a spouse dies, the flow of income stops. You are left with children, a mortgage, debts, and medical expenses, not to mention worrying about your children’s college education. I hate to say it, but that person isn’t gonna be crying because they lost a loved one; it’s because they depended on their money to support the family, so now they have to foreclose on the house and work 3 jobs just to make ends meet. I’m just shocked how many people don’t have life insurance. It should be mandatory, just as car insurance is in most states. You need a car to get to your job, but you need a job to support yourself and your family, otherwise you’re homeless.
Here’s the simple difference between term life and whole life:
Term life is temporary insurance. It offers the broadest coverage for the lowest premiums, because it’s strictly a death benefit. It can last 1, 5, 10, or 20 yrs.
Whole life is permanent insurance. It can last up typically up to age 100. It also builds a cash value, similar to a savings account, that has a higher interest rate, generally around 4-5%. You can borrow against your cash value, but it’s considered a loan you have to pay back (doesn’t make any sense to pay back your own money, eh?). You have to wait a certain number of years before you can take out that cash value without incurring a surrender charge.
Universal life can either be term life or whole life. It offers more flexibility as needs change if they change a lot during one’s lifetime.
Variable life is about the same thing as Whole life, part of your premium goes into an investment that has no guarantee of performance, the other part goes towards the cost of insurance.
All I can say is, they have to be one hell of sales agent to sell products like that, whole life, universal, variable… it’s all a rip off. 80% of Americans who know better invest in term life, from my friends who are stay-at-home moms with 4 kids, to the wealthiest self-employed people and investors out there, they know what’s best for them. “Buy term, invest the rest.” The fact that my mom’s agent and her husband explained that whole life is better, just gets me riled up. They wouldn’t lie, they can’t or they’d lose their license, but there’s info they wouldn’t disclose that can tend to mislead in the end, and they can get away with that if you didn’t read the fine print or understand the insurance lingo. Really, the only reason they sell that stuff, is cuz they make better commissions.
So what if you buy term, where would the rest of the money you have left go towards? I’d recommend openning up a traditional or Roth IRA (depends on the age and needs of the person). This’ll open up some doors to the world of investing too, as you can start looking into mutual funds. For the young person, going high risk is better, investing in a fund that has a proven track record of making a 12% rate of return in the last 10-15 yrs. Go 12% =)
Also, on a side note, here’s why I don’t recommend putting your big money savings in a savings account or money market account: banks and financial institutions are really putting your money at a higher interest like 12%, because it is a higher risk and that percentage can fluxate over time, down to 8%, up to 13%, it just depends on the market. They make more money that way. That’s why they can guarantee 3% on a money market or 6% on a bond, because there’s a lower chance of that fund dropping below those percentages. If it does, then they’re entitled to compensate the loss, which isn’t a problem cuz they have the money to make up the difference. That’s why it’s always better for the customer invest their money directly into the global economy instead of going through a bank.