Guest post by Charan Singh
Every month almost one million Americans consider and purchase a new life insurance policy. In today’s economic environment, when consumers are often looking to reduce costs, what are the most affordable ways to protect a family?
Life insurance is the foundation of a smart financial plan, particularly when there are family and loved ones who depend on a person’s financial support. All other financial planning can be for naught without the foundation of life insurance in place. That’s why you see millions of people researching life insurance online and almost a million a month purchasing life insurance.
There are two basic categories of life insurance: term insurance and permanent insurance. The primary difference is that term insurance is pure insurance. It pays only if death or other defined event occurs during the specified term of the policy, typically 10, 15, 20, or 30 years. Because the policy specifies a particular time period during which an individual and his or her family are protected, the carrier is essentially taking the “risk” that the insured party won’t make a claim during the specified term, and that is a more limited risk than absorbed in permanent and whole life policies. This makes term insurance generally less expensive and more flexible than permanent insurance.
Permanent insurance policies, such as whole life, are just that””permanent. They accrue cash value over the insured’s whole life and perform more as investment instruments than as pure insurance. This generally makes them more expensive, because, of course, everyone dies eventually and the odds are 100 percent that the insurance carrier will have to pay a claim as long as you continue to pay the premiums.
Thus, term life insurance is probably the smartest life insurance choice in the current economic environment. First, it is typically the most affordable form of life insurance and, secondly, it provides the most coverage for the dollar, the best value. That’s because term insurance is pure insurance, whereas most other life insurance products are often, in essence, combined investment or savings vehicles.
Most people buy term life insurance because it offers significantly lower monthly premiums for the same death benefit as a permanent policy. Parents with young children and limited budgets might start with a term policy of 15 years””long enough to keep their children safe until they are independent ““ or until greater family wealth is built up over time. If the family still needs life insurance at end of that term, when the family income is likely to be higher, they can convert to a larger term policy or one of the higher-priced permanent or whole life insurance products.
Term insurance is particularly applicable in this economy for people such as:
(a) parents with children, particularly young children
(b) for people with older dependent children and dependent elderly parents
(c) for entrepreneurs starting a new venture or who are critical to their family or small business
(d) even for young professionals with no dependents who are looking for an affordable insurance option.
We buy life insurance to protect those who depend upon us. If someone you care about ““ a child, a spouse, a parent or partner ““ relies on your income than the most affordable and effective way to protect them is to have a term life insurance policy. The value of life insurance is apparent to most people, even if they do not want to think about the subject. Life insurance replaces lost income and pays for the way of life a provider gives to his or her family. It ensures that house payments are made, meals are on the table, bills are paid, and cherished dreams are realized.
Whether you are your family’s primary income producer or its primary caregiver, your dependents need the security and help that life insurance provides.
Charan Singh is the founder and Chief Executive Officer of SelectQuote, (www.selectquote.com) the leading online source for term life insurance information, comparisons and products. Singh previously served as a leader of insurance services at Charles Schwab, and has more than 25 years experience in the financial services and life insurance industries.