Life insurance is insurance that protects loved ones in case something happens to a member of their family. This is especially true if the person who passes was the sole—or one of the major—breadwinners of a family. Many Americans may be curious to know if they need life insurance. Nobody really needs to have life insurance—as it isn’t required by law. But it is recommended that most individuals with families do.
Knowing the pros and cons of having life insurance can help a person determine whether they need to purchase life insurance. The pros and cons of life insurance vary, and it is important to weigh out both before choosing to opt in for life insurance and then choosing a policy.
Is Life Insurance Right for You?
There are a few things to consider in order to figure out if life insurance is right for you. The main reason that people get life insurance is to provide financial safety for any of their dependents, in case they unexpectedly pass away. Most people consider life insurance if:
- They are the sole breadwinner in a family.
- Have several dependents—especially younger ones.
- Want to leave loved ones with some type of inheritance.
- In some cases, people get life insurance to pass on or borrow money tax free (depends on the policy).
- They want to make small payments every month to secure a large amount.
What Kinds of Life Insurance Are There
Generally there are two main kinds of life insurance policies out there:
1. Term Life Insurance
Term life insurance is the most common type of life insurance for Americans. It is the more affordable of the two life insurance policies, and the premiums typically stay the same throughout the course of coverage. Term life—like the name suggests—has coverage for a certain amount of years. This range is usually from ten to thirty years.
Term life insurance is best for young families who would want coverage for a certain amount of time. For those looking for the most cost-effective type of life insurance, term life insurance may be the way to go.
2. Whole Life Insurance
Whole life insurance—also known as permanent life insurance—is insurance that provides coverage for the policy holder’s entire life. So as long as the premiums are paid, the insurance will last until the policy holder passes. Whole life insurance is more expensive than its counterpart. The premiums of the policy tend to stay the same, but may change throughout the life of the policy holder.
For those who want coverage for their entire lives—despite the age of their family—and don’t mind the extra cost, whole life insurance may be the way to go.
The Pros and the Cons of Each Type of Life Insurance
There are pros and cons to life insurance. Since there are two major types of life insurance, it may be beneficial to understand the pros and cons of each kind. Here are the pros and cons of both term life insurance and whole life insurance:
Pros of Term Life Insurance
Cons of Term Life Insurance
|· Low monthly cost|
· It is easy to shop and compare this type of insurance
· Could help protect families for a certain amount of time
· Even with the low cost of insurance—the policy holder still receives the death benefit
|· Limited coverage|
· No capital build up
· Once a policy is in place it cannot be changed
· The amount of this policy will be taxed
· Premiums may go up after the term ends
Pros of Whole Life Insurance
Cons of Whole Life Insurance
|· Guaranteed investment return|
· Builds cash value
· A person can borrow from these policies without any penalties
· The benefits are tax free
|· High monthly cost|
· Investment returns may not be very high
· Very complicated policies—may need to pay an insurance broker
Before picking a type of life insurance policy, it is a good idea to review the pros and cons of term and whole life insurance. Although term life is the more common type of policy that Americans have, this does not mean that it is the best fit for everyone.
Life insurance is not necessary for Americans, but it is a good idea to have that type of protection—especially if a person has dependents that rely on them for financial support. Before picking a policy, it is important to understand the two major kinds of life insurance that exist: term life insurance and whole life insurance. If a person is thinking about getting a life insurance policy, they should know and understand the pros and cons of both term and life insurance.