I had several inquiries from readers regarding which life insurance is the best option for them. Instead of answering each question individually, I opted to write this post. By the end of this short read, you should have the answers to the following 2 questions: Do you need life insurance? Should you get â€œtermâ€ or â€œwholeâ€ life insurance? Hint: You should ALMOST NEVER buy whole life insurance.
I had several inquiries from Future Proof readers regarding which life insurance is the best option for them. Instead of answering each question individually, I opted to write this post. By the end of this short read, you should have the answers to the following two questions:
Life insurance is conceptually simple. Just like you buy auto insurance to cover in case you get into a car accident, you buy life insurance to cover in case you die. Unfortunately, that’s where the simplicity ends. The financial industry has gone to great length to create many products based on this basic concept, some of which can get confusing quickly. Before we get into the weeds, let’s addressed the biggest question first:
Life insurance gives your designated beneficiary(s) a payout in case you die while under coverage. If you have a family (spouse, kids, pets etc.) for which you are the main breadwinner, then you should consider life insurance. In other words, if you have people whose quality of life would be adversely affected by you dying (losing your income), then you should get life insurance. If no one else depends on your income, then you don’t need life insurance.
There are a lot of different types of life insurances that may have been paraded before you by your local insurance agent. Let’s take most of the complexity out of it. As far as you are concerned, consider there are only two types of life insurances.
After you read the above descriptions, you may come to the conclusion that whole life insurance sounds like the sweeter deal - not only does your beneficiary get a guaranteed payout, they'll also invest your money and help it grow. You would be WRONG, for the following reasons:
If someone you care for would suffer significantly (financially) by you dying, then you should consider purchasing life insurance. When you decide to buy life insurance, you should comparison shop between term life insurance policies and NOT whole life insurance. There are very few situations in which whole life insurance or one of its derivative policies makes sense (e.g. asset protection and estate planning). If you are in one of those situations which likely means you are extremely wealthy, you should stop reading and consider becoming a sponsor of the Future Proof, MD blog instead. :)
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