The purpose of life insurance is to protect an individual's dependence from financial devastation. For example: if a breadwinner dies with no life insurance there is nothing in place to replace their income. This leaves their family sadden by this person's death and also scratching their head about how they will pay their bills, buy food, and pay for burial cost.
So there are two types of life insurance policies; term and whole life. I've stated before that term is a better choice. And here is why:
Whole Life Policies are often considered more attractive because of the name and a little feature attached called cash value. Whole life is designed to provide an individual with coverage for their whole life (up to 100 years). But what people don't understand is that if you have a good financial plan you won't need life insurance your whole life.
The cash value attached to this policy is considered a savings/investment. But there is no need for your investments to be bundled with your life insurance.
Lets go a little deeper with this cash value. In the first two years you pay premiums and get no money placed in your saving account (cash value). In fact if you invest in whole life policies those first two years you are being overcharged. This means that you are being charged for developing cash value but no cash is actually being added to the account . The pictures below are from the Life Insurance Cost Disclosure and it states what insurance companies do with your "overpayments".
Term Insurance is rather simply. Term insurance provides pure protection at inexpensive cost. The only thing that you need to worry about when it come to term insurance is the length of your insurance period and the renewal ratings. You want to make sure that your insurance will cover you for 20 to 30 years. Also be sure to check to see that the company provides a reasonable renewal rate so you can reinstate your policy if you need to.
Well, that's all I have. I hope this information was helpful. Feel free to leave your comments below. I would love to know what you think about this topic.