- Personal Finance»
Because I am a licensed agent and work with people all of the time, I get asked questions about life insurance every day. I've found over the years that people do not really know that much about what to look for when buying life insurance or how much to have in place or for that matter what kind to have.
I think that the industry and financial "gurus" have made it a lot more confusing than it really needs to be and therefore out of the confusion, people don't buy life insurance or worse, cancel good policies because they are talked out of them. In any case, the life insurance companies usually win when people cancel policies because they don't have to pay anymore. What a shame too.
I don't have any statistical data on it, but it's my feeling that the most common type of life insurance people have is group term life insurance that is company provided. Because employees actually just get it with no effort on their part and it's usually free, a lot of people have this type of life insurance. While this insurance is great, it is owned by the company and in most cases terminates when an employee leaves. Therefore, because most people leave or retire from a job before they die, this life insurance rarely is called upon to do what it is supposed to do and that is pay when you die. That doesn't mean it won't work if you die while you have it. It just means that you are unlikely to use it which is good because most of live a long time.
The other two basic types of life insurance are term life insurance and whole life insurance. These are policies that typically you purchase and pay for on your own. Term life insurance last for a certain time period or term such as 10 or 20 years. It usually has a level death benefit but it can decrease if it is mortgage life insurance. Premiums also can be level or increase. Every policy is different. There is usually no value to this type of life policy when it expires. For the most part, the life insurance company actuaries have it figured out and we usually outlive these policies as well. That doesn't make them bad policies it just means that we get what we pay for when we rent coverage. Personally, I have a term policy with a 20 year term that I rewrite every few years to extend my term. I think that everyone should own a term policy of a sizable amount. In my case, I have over a million dollars worth of coverage because money doesn't last like it used to and we have to pay for everything we use in life and it adds up quickly.I recommend that you get some term life insurance quotes from some good companies and choose the best one. If you are healthy, you'll find that it is really cheap life insurance to buy when you start to get some life insurance quotes and take a look at it.
Whole life insurance is the next type of life insurance. While there are many variations of this type of coverage, the basic premise is that it will last your whole life. It also has a cash value or surrender value should you desire to cash it in or borrow against it. It used to be that the life insurance company guaranteed everything in a policy like this, but that is not the case anymore. What happens these days it seems is that most of the risk of whether the policy will stay in force lies with you and unfortunately alot of these policies will lapse because they run out of money before you die and you cannot afford to keep them. The best whole life policies to buy are the ones that are completely guaranteed to do what they promise. The only way to do this is to read the life insurance illustration you are provided when you buy the policy and review the actual contract once you receive it. My mother had a policy that tripled her premium when she turned 65 and she couldn't keep it. Neither one of us knew that such a premium test was in the policy.
Most people are happy just to get a life insurance quote and the insurance companies know that you are premium sensitive. In order to get you to buy a pollicy, they strip the guarantees from the policy and reduce the premium to tell you what you want to hear. That doesn't mean in all cases, it just means you need to know what you are buying and low cost life insurance doesn't mean it is quality life insurance.
I also have a whole life insurance policy for myself equal to what I think it will cost to take care of my funeral in the future as a companion to my term life insurance policy.
While most of don't like to think about life insurance, things can happen at any time and it is the cornerstone to protecting your families future. Make sure you don't ignore it.