Life insurance comes in a lot of different flavors so that it can meet the needs of a lot of different people. The two primary choices, whole life and term life insurance, differ widely in their options. If you want more coverage for less, a simple term life policy is the better option for five reasons.
More Coverage Per Dollar Spent
If you just take a quick glance at the cost of a whole life policy and a term life policy of the same amount, you will see that term life coverage can be obtained for much less. The average cost per ten thousand dollars of coverage for a term life policy will be about one-fifth to one-eighth of the cost of a whole life policy.
Lower Cost on Commissions
Whole life policies give the agents that sell them a much larger commission than a term life policy. In fact, it can be as much as 80 percent of the policy cost in the first year. Commissions on a term life policy are much lower, which gives you a lot more benefit for every dollar spent.
The higher commission on a whole life policy goes to the agent who made the sale. Unless you are deliberately trying to pay their salary, it just does not make much sense to buy a policy with a good percentage of it going to your agent. A term life policy lets you keep much more of your money in your pocket.
Money Available to Invest at Higher Rates
A powerful advantage of buying a term life policy is that it enables you to invest your money where you want. Because whole life policies typically pay a very low interest rate, it would not be hard at all to find another place to invest your hard-earned dollars at a better rate. Besides that, pulling out your built up cash value is going to reduce your coverage by that much, and you will also have to pay interest on that amount, too. On the other hand, if you have a separate savings program, getting cash out of it will not affect your coverage.
Guaranteed Renewal Available
One frequently mentioned aspect of term life insurance that is often pointed out on the negative side is the issue of renewability. It is true that the policy will expire after a certain length of time, but many term life insurance policies can now be issued for up to 30 years. If you get a policy with guaranteed renewability it will enable you to continue to be able to be covered – but the renewal rates will be higher because of increased age.
An unpleasant truth about life insurance is that most people will never keep it more than 10 years anyway. If you don’t keep it until you need to renew it, that makes this issue a moot point. On the other hand, if you had a whole life insurance policy, you would be paying much more per thousand dollars of coverage – and probably still eventually drop it anyway. Which one will save you the most money if you only keep it about ten years?
Simple Coverage without Whole Life Problems
Term life gives you the benefit of buying pure insurance without complications. It is true that it may not be for everyone, but when it comes to lower costs and having greater control with better interest rates over your savings dollars, it is impossible to beat term life insurance.
If you are still young, the amount of coverage you can get with term life insurance for just a little money is astounding. It is also at this time when you may have the greatest need for life insurance, particularly for those who are married, have young children, possibly a new mortgage, and maybe even the debt of a college education to pay for still. In the event of a death, this could leave a lot of unpaid bills on a spouse who probably won’t have the income to meet the sudden expenses.
