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Okay, guys, it’s time to get all sexy and talk about life insurance. I know, I know. Keep your shirts on.
Until recently, I had only written this brief primer on life insurance because it doesn’t apply to a lot of people under 30. But as some of us reading (and writing) this blog get older, I’m getting asked more often about the topic. In particular, people want to understand what whole life insurance is and whether whole life insurance is a good investment.
These readers—mostly in their late 20s or early 30s and starting families—are beginning (rightly so) to think about life insurance. And at some point, an agent has mentioned whole life insurance and the concept—getting guaranteed cash value that you can access while you’re still alive—seems appealing.
But maybe they’ve also read something warning against whole life, and they’re confused.
When you shop for insurance, you’ll also notice some insurers offer both term and whole, giving you some options. Many providers even offer term life insurance that requires no medical exam. While term policies are far more popular, there are some instances where a whole life policy makes more sense for a policyholder. It’s easier than ever to take out a life insurance policy, but it’s important to read up first to make sure you’re making the right choices.
Today, I want to clearly explain whole life insurance as well as reiterate when you should consider (and should not consider) life insurance.
When you need life insurance
If you’re like most, you may not need life insurance until you have kids.
After all, one of the common purposes of life insurance is, in the event of your death, to replace your income for the people who depend on it. In some cases, you may want to get life insurance for your spouse before you have kids. But there are few cases when young, single people need life insurance. Still, some insurance agents will try to sell it to you.
Read more: When should you buy life insurance?
Here is one example of when you should consider life insurance: if you’ve graduated with big student loan debts that a parent cosigned, you or your parent may want to get a life insurance policy on you to cover the balance of the loans.
In this case, opt for just enough term life insurance to cover the outstanding debt. In your early 20s, this policy should be dirt cheap. Avoid insurance products designed only to pay off your loans, and remember that you only need this insurance if your loans have cosigners. If you are the only signer on your loans and you die, a parent cannot be held legally responsible for those debts.
Read more: Get free life insurance quotes online now
What is whole life insurance?
In the world of insurance, there are two primary types of life insurance: term life insurance, and permanent life insurance. These are further divided into whole and universal.
Term life insurance
With term life insurance, you pay premiums for a specified term (usually 20 or 30 years), and if you die within that term, the insurer pays your survivors a benefit.
But term insurance is similar to car insurance: if you stop paying premiums, you could lose your coverage just like any other policy. Only paying for a specific term period is what makes term life insurance unique.
Permanent life insurance
With permanent life insurance, your insurance remains as long as you’re paying premiums. In addition, some of the money you pay in premiums accumulates as a cash value. You can use this cash value to supplement retirement income, and even take loans against it throughout your life.
The big difference between the two types of permanent life insurance, whole life and universal life, is that whole life insurance premiums are fixed for life while universal life insurance allows you to adjust the premiums and death benefit as you go.
I’ll talk about whole life insurance here, but understand that where I say “whole,” this does not necessarily apply to universal policies.
For insurers, whole life insurance can be an easy sell. Nobody likes “throwing money away” on life insurance, so the prospect of combining life insurance policies with a way to accumulate tax-deferred cash value is attractive.
One highly attractive option for getting permanent life insurance is with Policygenius. This is because you can shop around with Policygenius’s top-rated life insurance companies side-by-side to be sure that you are getting the best rate possible.
Since permanent life insurance is known to be more expensive, Policygenius has a team of licensed agents (who don’t work on commission) to help guide you and give advice on getting the right policy for your needs.
The pros and cons of whole life insurance
- Guaranteed (but modest) return on money.
- Fixed premiums.
- Eventually builds cash value you can borrow against or withdraw before death. >