Life insurance is a great way in which you can secure your family's financial situation, if you die. But buying a life insurance policy is not that easy. There are many things to consider and important decisions to take before making such an important step.
One of the toughest decisions you'll have to make before buying life insurance is choosing an insurance type. There are two major policies that you can purchase: whole or term insurance.
A whole life policy, also known as traditional insurance, is probably the most common type of life coverage USA citizens have. Like any other life policy, it covers funeral taxes and pays a death benefit to the insured's beneficiaries. A whole life policy remains active until the insured dies. Another thing that separates this type of life insurance from others is the cash value that it builds, by deducting a percent of the fees you pay as premiums and saving money for you in an account.
A term insurance policy is a lot like a traditional one, with two major exceptions: it doesn't build cash value and it remains active for a limited period of time, usually between 5 and 30 years.
Which one is better? This depends on the situation. On a first glances whole insurance seems way better, especially because it last for a whole time, so your family will receive something and besides this it builds cash value. But I am sure these great features won't look so good if we look at the prices and if we compare how much you'll pay for premiums and how much does the policy covers. For example, for a coverage of 250.000$ you'll have to pay 1200-2000$ in premiums per year. This means that in 25 years the amount you pay will be higher that the policy's coverage.
A term life insurance is much cheaper as you pay somewhere between 300 and 500$ for the same coverage amount. You do not have to worry about the fact that you will remain without coverage after the policy expires, because most term life policies have the option of renewing the policy for an additional term with the same premiums.
So when it comes to buying life insurance what do we choose: a term or a whole insurance policy? It depends a lot on your financial situation. A whole life policy can be very helpful in estate planning, but if you are looking for something cheap and efficient, go for a term policy!