I learned about Life Insurance many years ago and have purchased several different types over a lifetime of seven decades. The most basic type of Life Insurance is called “Term,” which is a straightforward arrangement in which the insured pays a monthly or annual premium and if death occurs during the time of coverage, the beneficiary collects the face amount of the policy.
The advantages of term insurance are its relatively low cost which can be a real plus for a young person starting out who has a spouse or child and wants them covered in case something happens. The disadvantage is based on how long the insured holds the policy. Premiums increase with age and, if the insured lives, there is no cash value or loan potential to fall back on. The premium money has been spent and no benefit accrues to the beneficiary unless the insures dies.
This predicament leads me into the second basic type of life insurance, which is called the “Whole Life” policy. Premiums are higher and are due on a fixed time basis, according to the policy terms, but the insured is able to build a cash balance in the policy as time passes. Most of these policies also make money available for loans after a sufficient part of the premiums have been paid.
In most cases, dividends paid on a whole life policy can be invested back into the face amount and reduce the fixed number of months. In my example, a holder of a term policy would be wide to turn that in for a whole life policy when making sufficient money to cover the added cost. This type of insurance is more of a real investment.
A third type, and one I wish I had invested in long ago, is the Annuity. In addition to a death benefit, money accrues in the policy to provide the insured a payout for life. The downside is the higher cost, espeacially when you are young, but the up side is an additional source of income when you are retired. Hindsight is great, but I neglected to study the situation adequately and regret that I did not take advantage of this arrangement.
But, on the bright side, I invested upon retirement in a variable annuity with a guaranteed death benefit and low adminisitration costs. That serves as a a cushion for me and I look at it as a real asset.
There is one more form of annuity called the single payment thet is available to people who have resources to invest. A one time premium will create a monthly income to you for life, depending on your age and other variable factors.
In all these years, I have learned that insurance is a positive factor in finacial planning and is far overshadowed by the glamour of the stock market and all of its ramifications. It is a more stable and steady kind of investment for the future.