Life Insurance: to Buy or not to Buy?

Life insurance is an issue that may pose a real challenge and make you wonder what to choose: a permanent policy or a term one. And here you find yourself guessing, which means I won’t be throwing my money away.

Permanent life insurance presupposes that a part of your premiums will be invested and some can be withdrawn tax-free for your children’s college, your retirement needs and so on. Good for you! Also, your heirs may get a huge death benefit after you leave this world.

However, is it really as good as it seems? Someone would say that the only one who will receive profit from a permanent life insurance is a salesperson, who will receive a fat commission after persuading you to make the policy life-long.

Let’s weigh up some pros and cons, and try to find out who really needs life insurance and why.

Question #1. How much do you actually need?

It’s always a bad idea to spend more than you can afford and, definitely, more than you need. The whole point of life insurance is to be assured your family will receive enough financial support if you pass away.

The trick is, in buying life insurance you risk spending more than your family will ever get. It’s a matter worth thinking about. You should always remember that insurance companies collect particular sums in premiums, not only to pay off your benefits, but to cover their expenses and to make profit out of it.

Question #2. How long will you need it?

You know that permanent life insurance will cost you much more than a termed one. That’s a given, because permanent insurance will cover you through your whole life. However, many people don’t need any life insurance after the retirement. They may not have children or any other dependents, or their family may have enough income to live happily without this insurance.

Therefore, who actually needs any life insurance in retirement? There are several variants. People, who may not have enough money to cover their final expenses, like medical care home fees and funeral costs, and don’t want to burden their relatives. Those, who have family members that depend on them and will be in a difficult financial situation after their death. And the final group of people are those who have a taxable estate. A life insurance policy may help to pay the estate tax. If all these situations have nothing to do with you, most probably you don’t need permanent life insurance. A term policy would be enough.

Question #3. What about tax benefits?

You know that in buying a permanent life insurance, part of your premium is converted into cash value that can increase according to the policy interest, dividends and earnings from investments. The best thing is you can take money from this cash value account anytime you want for any purposes like education or retirement plans without paying any taxes.

Sounds pretty tempting, doesn’t it? However, please remember that any investments, including those, presupposed by your policy, can be risky and may cause additional unforeseen expenses. Besides, you should carefully examine your life insurance policy beforehand, to be sure you know and understand all the costs following your insurance plan.

The next step you should probably take is to compare how much you will receive in both scenarios, buying a permanent life insurance, or buying a term policy and investing the premium difference somewhere else.

So, which is better?

Every person has a different life situation. Sometimes it can be more than reasonable to buy permanent lifetime insurance. The main advice here is to carefully estimate your options and possible outcomes of all the variants you have, and choose the one that suits you best.