Life insurance is no fun. But you know you ought to get some.
But what kind?
If you talk to a lot of insurance people, they’ll try to get you to buy a whole life insurance policy or a universal life insurance policy.
Others, however, like financial counselor and author Dave Ramsey, will tell you to ignore that advice and buy term life insurance instead.
So, whose advice is right? Here’s our take. Unlike a lot of our peers, we believe that the vast majority of people should buy term life insurance.
Here’s why we think term life insurance is better:
1. Term life insurance is a LOT cheaper. Let’s be honest – this is a huge issue for most of us. You can get way more term life insurance protection for the money when compared with other forms of life insurance.
2. The main point of life insurance is to protect those who depend on you if you die. There are better ways to invest your money than in a “cash value” life insurance policy. Term life insurance does not accumulate cash value, but given how much greater the value is, that’s just not a big deal. The main thing is to make sure you provide for those you’d leave behind, and a term policy does that very well.
3. Did we mention the price is better?
So, is it ever a good idea to buy a whole life insurance policy?
There are two situations where a whole life insurance policy is worth considering:
1. You want to transfer a large sum to the next generation without inheritance tax. If you are a high net-worth individual, you might consider this approach to wealth transfer upon your death. Obviously this is a long-term strategy and the premiums are not cheap, but they likely aren’t as high as what your estate could expect to pay in inheritance taxes.
2. You want a small “final expense” plan. You can buy a final expense plan worth around $10,000 to help cover the costs related to your funeral, burial, and that sort of thing. In fact, most funeral homes have such policies available. Now, it is obviously far better to simply stick $10,000 in a savings account somewhere or to systematically try to do so over time, because that won’t cost you any premium.
We believe that nearly everyone needs a term life insurance policy. Certainly anyone who is married or has children should put a policy in place to protect them.
It’s simple and easy.