What is Term Life Insurance and Whole Life Insurance?

You’ve been working full time for a few years now and you keep saying to yourself that you need to get some life insurance to cover your family. You’ve just been so busy you haven’t had time to get a policy. You may have heard about term life insurance and whole life insurance and don’t know the difference.

Term life insurance is basically insurance that pays the face value of the policy to the beneficiary when the insured dies. Term insurance can be for a set amount of years (up to 30). When you die your family receives the face value of the policy.

Whole life insurance involves investments that can increase in cash value. Some people borrow against their whole life insurance policy. When you die, your family also receives the face value of the policy, not the money earned. Term life insurance premiums are typically much lower than whole life premiums.

Some Information to Consider on for Coverage Amount

How much coverage should you get?  I personally used MSN’s Life Insurance Needs Estimator. I entered some data and was given the ballpark figure of $100,000. Some questions you should ask yourself:

  • How many years before you retire?
  • Are you financially responsible for anyone other than yourself?
  • In the event of your death, how much annual income would your spouse or partner be able to provide to compensate for the loss of yours?
  • What is the approximate balance owed on your mortgage?

Use MSN’s tool to get a ballpark figure for yourself.

How would this breakdown with term and whole life insurance premiums?

Term life insurance for me would be $9-12/month while whole life is around $30-40/month.  If I got term life insurance what could I do with the difference saved? Many suggest investing the money and build your own assets.

Tips When You’re Looking into Life Insurance

MSN offers some tips for those looking to get insured:

  • Look at your budget before committing to a premium.
  • Don’t let a policy lapse if you plan to buy another one at some point.
  • If you are single and simply don’t want your relatives burdened with the cost of a funeral, consider contributing to a Totten trust savings account.
  • Clean up credit issues before applying for insurance, because most companies base rates partly on credit history.
  • Watch for hidden fees, including those for paying premiums by direct withdrawal from your checking account.

As with everything financial, you should check the company you’ll be insuring with to make sure your money is safe.

How many of you have life insurance? What kind do you have and why?

Photo Credit: woodleywonderworks