If you have ever even remotely considered buying insurance, you know about the debates that rage in this area over which is the better kind of life insurance investment – term or permanent? If you buy life insurance of the wrong kind, it can do a great deal of harm to the way your financial plans pan out in life. Which is kind of surprising; there is practically no other kind of investment out there that you can make a bad decision on and bring on as much suffering for yourself with. Let’s take a closer look at this crucial choice you’ll need to make when you decide to buy life insurance.
When you buy a term life policy, the only way you can win is if you die. If the policy lasts five years and you make the mistake of staying alive to the end of those five years, all the premiums you pay come to naught. A permanent life policy gets you a little more satisfaction in choosing to not die. Of course, you do win when you die, but you also win when you continue to live past the date the policy expires (the policy expires, and not you). You can cash the policy in for at least as much as you’ve paid, if not more.
If you’re wondering why on earth anyone would go to buy life insurance of the term persuasion, you would do that if it only cost a fraction of what a permanent life insurance policy would. It’s kind of like travel insurance. If your flight doesn’t crash and burn horribly, you lose the $10. But you can take satisfaction in the fact that you only lost $10 and gained peace of mind in the bargain. Not to mention, you got to live.
The problem is with the cash that you pay to buy a term life policy. It’s likely to be a higher investment in the annual premium than on a permanent life policy for the same period of time. That’s because the insurance company has only a short time in which to protect itself from any bad news to its investment in you. They charge you a big down payment the first time you take up that term insurance policy, and you pay a smaller premium every subsequent year. With whole life insurance, the premium is the same, no matter what.
The alternative makes a good deal of sense though. Experts say that you should just buy term insurance for how cheap it is and for the protection it gives you an event of a catastrophe. But whatever it is that you would you save over buying a whole life insurance, you should just invest. That way, your money is yours, and you cover all the bases.