There are many reasons why people consider getting a life insurance policy in their twenties and thirties. However, by the time a person gets a financial advisor usually in their forties, the push to get a life insurance policy becomes more significant in their lives.
Part of the shift occurs as people begin to have more financial obligations and responsibilities. As a person enters their forties, many of them have established lives and debt. Additionally, by the time a person is in their forties many of them have started a family. Because of this, the concern for making sure that everything is cared for in the event of an untimely death is important to most people.
Understanding Life Insurance Basics
There are several major types of insurance that people invest in. Term and whole life insurance policies are the predominant ones for the average person. These policies are designed to give guarantees of financial payouts to the person specified in the policy. The beneficiary is usually a spouse, children or other family members who would care for things in the event it becomes necessary.
Term life insurances and whole life insurance policies offer two totally different benefits to the person who owns the policy. The differences are important to understanding. Especially before looking to invest in any life insurance policy so there is no confusion as to what is being invested in.
Whole life insurance is almost like investing in a savings account. It has a face value and grows in value with each payment. It has a point in time when it is paid in full and can be used as a savings account to be withdrawn against.
Additionally, whole life policies are more expensive than term life policies. However, once the policy is bought it cannot be cancelled out because of health problems as long as it is paid each month.
Term Life Insurance Benefits
By contrast, term life is considered a shorter-term life policy option. In general, a term insurance policy never grows in value, cannot be borrowed against and offers insurance for a limited time set when the policy begins. Term life policies are also usually considerably less expensive than whole life insurance policies.
Because of this, many people who are just starting out buying life insurance may question why people invest in term insurance if whole life insurance offers more benefits. The answer is not a simple one. While term life policies are cheaper, that is usually not the primary reason people purchase these policies over a whole life policy. However, there are certainly occasions when this is the case.
Because term life is so much less expensive, policyholders can buy a significant amount of coverage for much less money than traditional policies that are whole life. That is why many people carry a combination of both types of policies because each covers a specific purpose.
In some cases, for people who cannot afford a whole life insurance policy but want to have some type of coverage, a term life policy becomes the perfect answer to get some initial coverage. Like an auto or home insurance policy, term life is only used when a death occurs.
Some of these policies are known as very short term, such as an event type of term insurance policy. These types of policies are known often by other terms such as flight life insurance or travel life insurance. These policies are very inexpensive and literally only cover the person for the time of their trip, vacation or flights.
Term Life Insurances- Finances and Flexibility
But traditional term insurance offers many great advantages for people. For people who are trying to cover assets that can range anywhere from $100,000 dollars into the millions, term insurance policies can sometimes be the only affordable policy to sustain long term with high coverage amounts.
Additionally, for people who are younger, there is often little worry about dying young. Because of this, investing in a long-term life policy may seem excessive when they can invest their money in other things that they deem more important. In many cases, there is a financial investment concern of what is the wisest place to put their money. If they can invest in a higher yield return on investment elsewhere than investing in whole life insurance at that point in their lives may not be the wisest choice.
Term life insurances are also good life insurance policies for people who are unable to get whole life insurance policies because of health concerns. There is often more flexibility with buying term life policies than whole life. While the coverage may not be as extensive, there are options to buy term insurance policies for almost anyone at any age. This opens the door for people to investigate the different options that are available to them at many different points in their life and finances.