Life insurance is something that almost everyone needs, but no one wants to have to use. We invest in it to protect our loved ones at least financially if the unexpected should occur.
We usually feel that we should get what we pay for, and that often influences the decisions that we make financially as well. However, in the finance sector, it is not always that way. We take risks and must know going in that we can lose some money in exchange for the possibility to get something more important – usually more money, but in the case of life insurance, protection.
Your Investment Pays Off
If you have the former attitude, you will want to purchase whole life insurance, because you will always get the payout. With whole life insurance, you pay a high premium to purchase a policy that will last you until the day of your death, when your dependents will receive the sum of the policy. For people who don’t have an alternative strategy, this is indeed a good plan. When there’s no other money due to come in, insurance money will provide family members with a cushion.
In Australia today, whole life insurance is not sold, with good reason. The best life insurance is a policy that gives you just what you need for the right price.
There are two questions to consider here:
1) Will there still be dependents if you pass on at a very late stage in life?
2) Is there another way to provide an inheritance that will cost you less money in the long run?
Life insurance is generally only necessary if the people who survive you need the money. When you are just starting out and have a wife or husband who needs financial security, or even more, a small family, life insurance is essential. It ensures that if something happens to the breadwinner in the family, the rest of the family is cared for for a period of time.
However, as the family grows and the children move out, the need for life insurance is decreased. That doesn’t mean you should necessarily end your policy, but it means that you should consider term life insurance as a replacement.
The chief money that you leave as an inheritance for your family should come in the form of investments, not life insurance. Life insurance costs money; investment are almost free – you simply invest what you earn and watch it make more. A life insurance policy is still a good idea as a risk-free way to provide a safety net for your family, but if you have other investments in place, again, the needs are decreased.
Term Life Insurance
Term life insurance provides a platform for you to take out just the right amount of life insurance that you need at a given time. It means that you have the policy for a certain period of time, and then it disappears. However, you pay much less for the policy than for a whole policy that provides the same payout. Even though at the end you will have paid for a policy and hopefully received nothing in the form of a monetary payout, you gained the protection you needed at the time. You can take the extra money you would have paid for a whole policy and invest it in an instrument that will yield results no matter what. Compare life insurance quotes to see which term policy fits your needs best.
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