Life insurance can be an intimidating topic. I know I always felt like I didn’t have access to this secret club of adults who understood insurance. It was a totally foreign language to me. For the longest time, I just chose to ignore the topic rather than try to understand it. Now that I know how important it is, I really want to help you understand the difference of Term Life vs. Whole Life Insurance.
Somewhere during my young life, I became an adult. Not really sure how that happened, but one day I realized, “Crap, I’m a married adult and I should probably look into life insurance.” But, again, I got busy and forgot about it.
The good news for you is, life insurance isn’t really that complicated and you should know about and understand it. Turns out, it’s super important.
I remember driving to my first day of work as a real veterinarian. My husband and I were living in a hotel waiting to close on the purchase of our first home. I thought to myself, “What would happen if I died today? Would my husband have to pay for my loans? Would he be okay? Would he have to sell the house we just bought?”
I suddenly had a panicked feeling about death and leaving my husband with so many burdens, I actually drove the speed limit that day.
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When I got home from my first day of work, I started researching life insurance to figure out what I needed, how much I needed and how to go about getting it. I couldn’t live with the risk of leaving my husband with financial burdens/obligations.
What I found was basically it all boils down to two types of policies and lots of people have lots of different opinions on these. The two policy types are called Term and Whole. So, do you want a term policy or a whole policy?
What is the Difference between Term Life vs. Whole Life Insurance?
Term Life Insurance = cheap.
Term Life insurance is something that you have for a set amount of time, like 20 or 30 years. If you die during that time, the money goes to the person/people you select (ie. beneficiaries). These policies are only worth something if you die.
Whole Life Insurance = expensive.
Whole Life insurance is coverage that also has a built-in cash value (because you are investing the cash). These policies last for your whole life and are essentially you investing in the cash value of them. These policies are worth something even if you aren’t dead.
So which type of insurance should you get?
If you plan to become debt free and invest intelligently, you shouldn’t need life insurance coverage forever. The idea behind taking control of your finances, budgeting, getting out of debt and planning for expenses is to eventually have lots of money.Sounds nice, right?
All that money you have worked so hard to accumulate will become your own life insurance policy. You will essentially be “self-insured.” This is why, if you plan on being in control of your money, a term life insurance will be the very best type of insurance policy for you.
At first, I was super confused about why I actually needed life insurance, but after all of my own research, there is something that will help you decide what is best for you.
If you are married and/or have children, the question to ask yourself is, “If I died, would they still need my income to survive?” Meaning, does your family currently survive thanks to your financial contributions? If your answer is a resounding, “Yes!” then you need life insurance.
The purpose of life insurance is to replace your income for your family so they can continue to live as if you were still alive. You wouldn’t actually be there anymore, but your financial contribution would be.
If you have no one relying on your income, then maybe you don’t need life insurance. BUT, you still need to think about paying for funeral expenses and/or any outstanding debts you may have. You would still need a small policy to cover those costs.
