Life Insurance 101: Is it worth the monthly payment?
When your budget is tight, every penny makes a big difference. Some people use this excuse to justify not paying for life insurance. While the expense may seem unnecessary when you are just trying to get by, having a low income is all the more reason to invest in life insurance.
You should seriously consider purchasing a life insurance plan if you are married, have children or have other dependents that rely on your income. If you are single and have no one depending on your income, except yourself, that’s a different story.
Life insurance is designed to pay a beneficiary a lump sum of money upon your death. This money isn’t intended to be a payday for your survivors; instead it’s designed to provide financial assistance to help your family replace income lost upon your death.
Whole Life vs. Term Insurance
When you begin to look for life insurance policies you will discover there are two different types of policies whole life (Universal is very similar to whole life) and term. These policies are very different and the cost is very different.
A whole life policy advertises itself as an investment in addition to insurance coverage. Essentially, a portion of your monthly payment is set aside into a separate, interest-earning account. You can access these funds if you need them in an emergency, however, you have to pay it back with interest or risk losing some of the death benefit if the insured dies before the sum you borrowed is paid back into the account. Additionally, whole life policies mature when the insured reaches the age 100. When this happens you receive the face value of the policy. You do not get the money you invested and the face value of the policy. If the beneficiary dies before the policy matures you receive the face value of the policy.
Whole life and universal policies are more expensive than term policies, but payments will generally stay the same even as you age.
Term insurance is designed to cover an individual from anywhere between 10 and 30 years. The costs of these policies are almost always cheaper than a whole life policy, but monthly premiums can increase. Additionally, if your policy expires and you decide to renew, you’ll pay a higher premium based on your new age.
While there is no cash value in this insurance, you can often get a lot more coverage for less. This is great for low income families. You can get the coverage your need without going broke. Additionally, this type of insurance is beneficial even when you earn more money because you can invest the money you save on the cheaper policy into a higher yielding mutual fund.
If you were to pass away tomorrow, would you family still be able to cover all of the bills, debts and mortgage payments? Life insurance is an investment in your life and your family’s future, it isn’t a death wish. Life insurance can protect your family after you are gone. Even though it may be a difficult conversation, it’s an important one you should consider having.
For more information on different types of insurances, visit our insurance section.