As discussed in a previous post,
life insurance is a complicated subject and there are no easy ways to know
which one is right for you, how long you should take it for, how much insurance
is enough etc. etc. No one can answer
these questions for you—you’ll have to work them out yourself.
But,
what Adam Ginsberg can do to help you reach a decision about which type of
insurance to buy is break down the two kinds of insurance available, i.e., term
insurance and permanent, or whole life insurance.
The
most basic difference between a term policy and a whole life policy is that a
term policy only provides death benefits to the insured person’s beneficiaries
in the event of his or her death. A whole life policy, on the other hand, has
an investment component along with death benefits which builds cash value over
the life of the policy. Therefore, the returns on a whole life policy can be
enjoyed by the insured person as well during his or her lifetime.
Secondly,
a term insurance policy is taken out for a fixed term, like 10, 15 or 20 years.
On the other hand a whole life insurance policy lasts for as long as you keep
paying your premiums.
The
third basic difference between the two policies is the applicable premium. Term
insurance plans have very low premiums compared to whole life policies as a
part of the premium for the latter is invested in building the cash value
component as described earlier.
Apart
from these basic differences, what you should consider when choosing
an insurance policy is the death benefit
offered. On one hand you may be able to
get a $500,000 term policy, for say, $300 annual premium, but for a whole life
policy of the same amount may cost you $3000 every year. Therefore, before you
make a decision, you should consider whether you are better off investing in a
term policy for $300 and investing $2700 in other investment vehicles with
higher returns or if you should hedge your risk and invest in a whole lifepolicy for lower returns.
For
more
tips from Adam Ginsberg on finance and
how
to make money online read the secrets
of an auction millionaire.
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