Life Insurance: Answering Your Questions

Term vs. Cash Value (Whole) and other products discussed

SALINE, MICHIGAN  JULY 8, 2004

Most people understand the primary purpose of life insurance: to provide financial relief to your family if you die.  It is vital to protect those who rely on whatever forms of income you provide today.  It can also provide funds for various costs that can be associated with a death, including medical expenses, funeral costs, etc.

The biggest questions on life insurance is probably which "type" of insurance to pick up for yourself.  As with any investment, you have to come up with a way to measure the costs vs. the benefits/risk of the money you put down.  One place to check first is with your employer.  Often companies offer life insurance at rates severely below that of traditional insurance companies (but also with a defined amount of maximum benefit).  It differs, but often companies will provide insurance at a multiple of one's annual salary or wage equivalent.

The two major types of insurance are Term Life vs. Cash Value insurance.  Let's look at each of them now:

"Term" life insurance is a financial product whereby each of your insurance premiums (or payments) are applied to the cost of your insurance benefit.   As you near a retirement age, the value of the insurance goes down, as is is likely that your beneficiaries are better suited to support themselves in the event that you die.  Term life policies can typically be canceled, and defined for a set time period or term.

"Cash Value" insurance includes a variety of products.  Cash is also often called "Whole life insurance", "Universal Life", and "Variable Life".  All these typically include life insurance with some type of savings plan.  One of the biggest differences between these policies and term, is that they are meant to be policies that you keep for life.  These types of insurance policies yield the most scams: make sure you understand what you are paying for and the fees associated with it.