Life insurance can be confusing. Knowing what to get and how much is a major decision. Should you get term life or a whole life policy? If you get whole life, should you choose variable whole life or universal? Everyone has an opinion on what the best life insurance policies are. The best thing to do is ask a trusted financial adviser. They will take your situation into consideration and guide you in the right direction. But you must also do your own research in finding the best life insurance policies for you and your family.
The first record of any type of life insurance began in ancient Roman times. The Romans formed what was called "Burial Clubs." They believed the people needed to be buried properly and had extravagant ceremonies to honor the life of the recently departed. In order to have these ceremonies performed, the Romans would join a club and would regularly contribute to it. Once a member died, the club would bury the body and sometimes would even give the family a stipend. What we now know as life insurance began in 17th century England with underwriters who would insure people for monetary gain. The United States jumped on the bandwagon in 1787. By 1837, over 20 different life insurance companies were started in the United States.
There are five basic types of life insurance: Single Premium Life, Term Life, Whole Life, Universal Life and Variable Life insurance.
Single Premium life insurance has the insured pay a one-time premium fee and will receive a fully paid life insurance policy. The insurance company does see this as a long-term policy, though, and receives an annual payment.
Term life insurance gives the insured a designated amount of money, which is a lump sum if death occurs before the designated time. Policies can be bought in time increments of 1, 5, 10, 15, 20 and 30 years.
Whole life insurance covers a person for an entire lifetime or until the age of 100. The premiums tend to be higher but the payments go toward the policy and part of it goes toward the investment cash part of the policy.
Universal life insurance is a type of Whole Life, but the investment portion of the policy is invested into a money market instead of the stock market.
Variable life insurance is also another form of Whole Life but it gives you the option of where you want the investment portion of the money to go.
According to experts at Smart Money, the best life insurance policy is a term life policy. The reason is that it is cheap and the most affordable. You could buy a million-dollar policy for about $2,600 a year if you were a 45-year-old nonsmoking male. You only have to pay into the policy for a temporary amount of time. You can get a 20- or 30-year policy to cover your needs if you have dependents. However, if you no longer have dependents, having a life insurance policy may not seem like a priority. The whole reason for a life insurance policy is to provide for your dependents.
According to experts at Budget Life, they feel that investing in a whole life insurance policy may be a good idea. Because the stock market is shaky, they also suggest you invest 10 percent of your portfolio in insurance. Whole life will cover you for your entire life regardless of when you die. A portion of your payment goes into a tax-deferred cash value account. Unlike term life, if you cancel your policy you are entitled to what you have paid into the policy. Another plus is you can borrow against the cash value at a decent interest rate, which will be deducted from the insurance policy if you die.
There are a few downsides to term life insurance. It will expire and, if for some reason you find yourself still needing life insurance, it will be harder for you to find it as you get older. Another downside is if you cancel your policy or outlive it, you will get nothing back. Some may feel that they wasted thousands of dollars, but because the policy was so inexpensive you could have invested other monies in other ways and can enjoy the benefits of that.
A downside to whole life is that the premiums tend to be very high, up to several times higher then with term life premiums. There is a termination date with whole life, too. If you live past the age of 100, you are given the cash value of your policy. However, the policy has a "lost opportunity" cost that is an annual premium payment. It's best to seek financial advice before you decide on whole life.
The benefits of having life insurance are numerous. Knowing that you have provided for your family is the best way to show them you love them. A sizable life insurance policy will also help your family pay any debts after you die. Your spouse, for instance, may be able to pay off the home rather than making a mortgage payment each month. They can even invest the money wisely and live comfortably off of the interest if your policy is high enough.