As we move on in life, it seems like the number of insurance that one needs to have kept growing.
There is the car insurance, the house insurance, health insurance, disability insurance and life insurance.
Some of them are mandatory and others have come to be a social norm. But it remains that we can ask ourselves, do I really need one?
Before going over the subject matter it’s worth understanding how the product works.
Basically, life insurance covers you in case of death.
Unless otherwise specified in the contract, the amount of coverage you have chosen is paid to your beneficiaries or heirs regardless of how the death occurs.
However, there are some distinctions regarding the length of coverage and the length of your payments that vary depending on the product you choose.
Term life insurance vs Whole life insurance
The main policies that people buy are term life insurance and whole life insurance.
A term life insurance is temporary, it has an expiration date.
You can choose from a large number of terms, it can be 10 years, 20 years, 30 years etc…
Once you reached the expiration date, you can renew it or just let it go and the coverage ends.
There is no money back with this kind of insurance. The principle is that you are covered only for the time your paying and that’s it.
On the other hand, there is the whole life insurance, which is permanent, meaning there is no expiration date.
This type of insurance also has a wide range of terms. You can get rid of the burden of paying for this insurance by choosing a term as short as 10 years.
Unlike the term life insurance of 10 years, this coverage remains. It’s just that you are released of payment.
Moreover, if you end up being in a bad financial situation the whole life insurance can provide you cash.
However, the cash value is paid only if you cancel the policy, and also you have to know that the amount paid is well below the coverage amount.
So do you need one?
The choice to take out life insurance is greatly influenced by our philosophy on life and our family situation.
To give you an idea of how it can be helpful, let’s take the example of a man who is the only provider of revenue for his household.
He has 2 kids and a wife.
If he ends up passing away prematurely, his wife will have to get a job. Will she have finished grieving by then? Will she be able to provide for the kids with her sole revenue? Moreover, will this have caused her debt problems?
These are important questions. Even if you say you are an ambitious person that will leave millions if you pass away, well while you are on your path you have nothing.
Thus if you pass away while being on your path to financial freedom you might leave your family in financial distress.
That being said, you might say yeah but I’m single, no girlfriend, nothing, nada.
Yes, in your case you might not need one but it still might apply for you too and here is why.
The premium is based on your age, health, if you smoke or not, the term chosen, etc…
So even if you are single, taking one now could save you from paying a higher premium when you get older and have children or because you have contracted an illness.
Which type should I choose?
Some of you might say, it’s obvious, a whole life.
Well, it is not that simple because whole life costs a lot more than term life insurance.
To give you an example, a man of 30 years old, a non-smoker, would pay around 20$ a month for a 10 years term life insurance of 300,000$.
Although, the same man would pay 20 to 30 times that amount for a 10 years whole life insurance of 300,000$.
Normally, term life insurance is taken for temporary needs. For example, being covered while you have a mortgage or while you have dependent children.
While, the whole life is taken for covering needs such as funeral costs or for leaving an inheritance.
So, to settle it depends on your needs and what is your take on it.