Term Life insurance is a low cost way to protect your family financially in the event of your untimely death. With term life insurance, you purchase a set dollar amount of insurance for a specified number of years. If you pass away during the life of that policy, then it pays out a onetime lump sum payment to your beneficiary.
With term insurance you usually purchase a large amount of insurance to take care of financial responsibilities you might leave behind like raising children and a mortgage. You are usually trying to cover the years where your income would be needed the most by your family. It is suggested that you purchase 10-15 times your current income. That might look like a lot of money right now but if you are talking about getting your kids through school and then college, paying off a mortgage etc. it will take a lot of money.
In a level term plan the premium rate is set (locked in) at the time you purchase the plan meaning you pay the same amount every year for the life of the policy. Therefore the earlier in life you buy your plan the lower your cost will be, before age and illness set in. After all, you will never be younger or healthier than you are right now!
Whole Life insurance is most often bought as a permanent, smaller life insurance policy that builds a cash value over the years. It is like a forced savings plan for people who will not save money otherwise.
As you pay your premiums, they buy life insurance and help to fund equity in an account that grows in value as interest and dividends build up. This type of life insurance plan is also cheaper the younger and healthier you are at the time you purchase your plan and lock in your premium rate.
A $500,000 20 year Term policy is estimated to cost $254 annually. If you took that same premium amount of $254 it would only purchase $11,000 in a Whole Life policy.OR A $500,000 30 year Term policy is estimated to cost $454 annually. If you took that same premium amount of $454 it would purchase $20,000 in a Whole Life policy.
That should give you an idea of the price difference between Term and Whole life. It is much more affordable to purchase a term policy to cover your high earning years (and the years where your family’s expenses are the highest).
If you have a business partner, it is recommended that you have a Buy Sell agreement in place. That would include a legal document, along with a term life insurance policy that would allow you to buy out your deceased partner’s family. After all, you might not want to work with your partner’s spouse or children in the event your business partner passes away unexpectedly.
The Company purchases a life insurance plan on a key employee. In the event of the death of that employee, the company receives a lump sum payout to help cope with the loss of that employee. It would help to train a replacement and pay the bills to keep the company going, while it deals with the death of the owner, founder or another very key employee of the company.
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