When your income barely meets expenses, allocating a portion of your hard-earned dollars to life insurance may seem unimportant. Yet, if you have loved ones who are dependent on the money you earn, life insurance may be the only way for you to continue to provide for them should you die. What insurance is the best value for your dollar depends on your circumstances.
Term life insurance provides coverage for a pre-set number of years. If you are in good health, you can buy coverage at very reasonable rates. This insurance pays nothing unless you die. If you live past the specified term, the money you spent on premiums and the insurance coverage both are gone.
If you decide to buy term life insurance, either buy coverage with a term that is long enough to keep coverage in force until your loved ones no longer need the income you provide or look for a policy that is guaranteed renewable. That way, you will not have to pass a medical exam should your health deteriorate. Renewal rates go up if exams show you are in poor health.
Whole life insurance, a type of cash value insurance, continues in effect from the time you obtain coverage until your death, as long as premium payments are kept current. Premiums per $1,000 of whole life insurance usually start out quite a bit higher than what you would pay per $1,000 of term life insurance. With most whole life insurance policies, coverage stays the same and premiums do not increase as you get older or your health declines.
You can cash in a whole life policy at any time, which terminates the policy. The cash value may be quite a bit less than the total amount of premiums you paid. You can borrow against the cash value while keeping your policy in effect. You pay interest on the amount borrowed until the loan is paid in full. If you do not fully repay the loan before you die, any remaining debt is deducted from the policy’s face value before payment is made to your beneficiary. If you find yourself unable to continue paying premiums, some whole life policies allow you to convert your policy to a paid-up whole life policy with a reduced amount of coverage.