Cash value life insurance vs term life insurance. Which is better for my situation and my family? When it comes to life insurance, the waters are murky and for every agent that is looking ot genuinely help you, there are five agents looking to just make a sale and sell you a product that does not meet your needs just to get a fat commission.
The Differences Between Cash Value Life Insurance and Term Life Insurance
Term Life Insurance is just that – life insurance plain and simple. Your premium payments do directly toward paying for the insurance on your life. Term insurance is typically purchased for a set period of time, say 20 years, and once the time period has been met and you are still alive, your term insurance evaporates.
Why Should You Purchase Term Life Insurance?
Those who are married and have children are usually the people who will benefit the most from having term life insurance. A parent may take out a policy to provide safety to their survivors in the event of their death. If you have children, you should typically have life insurance until your children are between the ages of 24 or 26.
Whole life insurance is typically a rip-off as is variable and universal life insurance. You do not need them!
What Is Whole Life Insurance or Cash Value Life Insurance?
Aside from being a complete and total rip-off, cash value life insurance is an insurance policy that is designed to be held for the entirety of your life. Cash value life insurance not only provides a death benefit, it also carries a cash value along with it with the original intention being that cash would be enough to pay the dreadfully high premiums it would take to keep the policy when you get really old.
With a cash value life insurance policy, a portion of your premium goes toward paying for the life insurance and the remainder is invested and carried as a balance with the policy.
It is pretty difficult to dip into your cash value balance to spend the money on anything else, so you need to be sure you do your homework when opening up this type of policy. Pulling out funds early will invoke some income taxes and erase the tax-sheltered benefits.
Regardless of the details of cash value life insurance, it is typically not worth the investment at all. You are much better off paying for cheap term insurance for as long as you need it, and investing any extra money into index funds.
Insurance Agents Profit Handsomely from Cash Value Policies
Insurance companies profit hugely from cash-value policies and is one of the reason why they are made to look like attractive investments. Just remember, you are being sold something and the insurance company is a BIG BUSINESS. Insurance agents make substantially higher commissions by selling whole life insurance policies than they get from selling term policies which is why you need to be leery, do your homework and go in with a plan.
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