What Type of Life Insurance Should I Get?

If you have a wife or husband and children, and they are dependent on your income to pay the bills, getting life insurance is one of the best gifts you could possibly give them. If the unexpected were to happen and you were to die suddenly and unexpectedly, the last thing your family should have to worry about is paying the bills. When you do get life insurance, make sure you get the right type of life insurance, and make sure you get the right amount.

There are two major options when it comes to life insurance, and one is a much better buy than the other. You will hear a lot about cash value or whole life insurance, which is one of the worst financial products made. Sadly, over 70% of the policies for life insurance are whole life products. They will show you a lot of fancy numbers showing how great of an investment it is, but none of the policies ever perform as expected.

Let's look at an example. Let's say a 30 year old individual has about $100 every month to spend on life insurance, for this he'll probably be able to purchase about $125,000 in insurance to provide for his family. They'll sell it to him based on the fact that he's building up savings for retirement, which they technically do. But if the man were to purchase term life insurance, he would be able to purchase about 1.5 million dollars in
life insurance for that same price!

But what about the investment part of it? Well, most of the $93 for the first few years gets eaten up by fees, and after that it will average anywhere between 2 and 7 percent, which is not a very good investment. Whereas if we invested in term insurance with that other $93, we wouldn't have all of those high fees, and instead we would be getting about 12% in mutual funds (the stock market has averaged 11.8% rate of return since inception).

There's a bit of a catch to term life insurance too. If you are to die, the money in the cash value that you build up disappears, and your family only gets the amount of the policy, and the life insurance company keeps the cash value.

Whole Life, Universal Life, and Variable Life insurance companies will also try to tell you that you will have the insurance forever, whereas with term you will only have it for 20 years, and then after the 20 years you might not be able to get insurance any more. Well, if you do smart things with your money for the next 20 years, chances are you will be able to have your finances in order, house paid off and plenty of money saved up.

Term insurance is definitely a better buy, and what your family should have. Whole Life companies will tell you a lot of fancy numbers, and they might actually believe what they are preaching, but the mathematics just aren't there. Buy term, and invest the rest.