Why Life Insurance?
Most people look at life insurance as something that is overwhelming and complex. Yes, certainly life insurance can be complicated, but it really comes down to simple need. There are really only two reasons to obtain life insurance: (1) for a business need (i.e., a business is financially vulnerable if a key employee or owner is lost); and (2) for the love of another. That’s it.
Personally owned life insurance is an economic instrument always purchased for the love of someone.
What Kind Of Life Insurance Is Best?
Just like the purpose of life insurance, the types of life insurance can be broken down simply into two groups: term life and permanent life insurance.
Term life insurance is temporary in nature. Ten, 20, 30 years is actually considered to be temporary by the insurance carrier. The carrier is “betting” that the insured is going to survive the term of the insurance and so they can give coverage for pennies on the dollar.
Permanent life insurance (whole life, universal life, and variable life are all types of permanent life insurance) is designed to be in force for the entire life of the insured, no matter how long or short. Here, the carrier knows that someday they will be paying a claim. Unlike term insurance, within this policy there is a cash reserve that builds up slowly over time to help pay the eventual claim. Because of this need to build a reserve, permanent insurance is generally eight to twelve times more expensive than term insurance for the same face amount.
There are situations that call for term and others that call for permanent coverage. The most important factor to be aware of in choosing between them is that one must be committed to permanent life insurance long term in order for it to work. If the insured gives up a permanent life insurance policy after only a few years of having it in force, it will be as if the insured paid a permanent life insurance premium for term insurance.