Why Go with Term Life?
Numerous financial consultants and other experts propose that people buy term life insurance rather than whole life policies. While you will see a few insurance brokers here and there who will tell you the same, most brokers who work for the larger insurance companies will tell you that a universal life insurance policy is a better idea. The grounds that they propose whole life over term life insurance policies is for the most part that they stand to receive a larger commission from selling these insurance policies.
Why do insurance agents get bigger commissions for these permanent life insurance policies? Since the insurance premiums for a whole insurance policy tend to be bigger than those for a term life insurance policy which provides the same coverage, the agent’s commission on the sale will be higher.
Why is it that so many people pick out whole life insurance policies despite their high premiums? One reason is that permanent life insurance policies will increase in value through time as the buyer progresses equity in the insurance policy. The policy holder can borrow against their equity at very low interest rates and the policy can be cashed in after a certain point for their cash value, which can often surpass the amount of the policy’s coverage should the policy holder die.
These policies pay out a rate of return on some of that extra premium money. It may be corporate dividends, or it may be returns on chosen stock and bond funds bundled up into the policy. Other portions of the higher premiums go to pay for the higher administrative costs for the company to maintain that policy for you.
Some individuals see whole life insurance policies as a good deal and so do insurance brokers, which is why they tend to push these policies when they can. Overall, they do work out fairly good for the policy holder and of course, the insurance company and broker also make more money from these policies.
As it happens, there are two key problems with these insurance policies. First, life insurance isn’t intended to be a lifelong affair. Second, consumers broadly speaking do far better in terms of returns by purchasing term life insurance and investing the remainder in cost between these policies and a whole policy.
This is how buying term life insurance and investing the remainder works: say you meet with an advisor from an life insurance firm. They advise that you buy a $500,000 life insurance policy. A universal life policy would mean paying about $200 in premiums monthly. You ask what a 20 year fixed term policy would cost at the same level of coverage. The monthly cost in this case would be just $37 per month until the insurance policy expires. You decide to go with this insurance policy and invest the $163 difference monthly in stocks or bonds. By the expiration of the policy, you should have made far more than the amount of your life insurance policy and no longer require this type of insurance coverage.
There is another choice to traditional universal life insurance policies and that is a variable universal policy, which provides a package of tax sheltered investments along with term life insurance. While this is a matter for another article, it’s something you may desire to look into.
Looking to find the best deal on term life insurance, then visit www.freelifetermquote.com to get free term life insurance quotes for you.
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