The reality of life is that anything can happen at any moment. We plan our lives to the T, but it could slip out of our hands in a second. Whether it’s an earthquake, an accident, or a disease, it’s good to be prepared for the unknown. Luckily, that’s what a life insurance policy can do.
Having a life insurance policy is always a good investment. However, which policy to get depends on your financial needs and the type of insurance you need. If you have limited financial assets, permanent life insurance may not be a very good investment. On the other hand, term life insurance is a beneficial investment. It helps cover debts and supports named beneficiaries after the death of the policy-holder.
Today, we’ll discuss whether affordable life insurance is a good investment, keeping in view the two main types: term and permanent. We’ll talk about which one may be better for you and which one you should choose depending on your needs.
Types of Life Insurance
We already briefly highlighted the differences between the two types of insurance, but let’s dive into it in a bit more detail.
- Permanent Life Insurance
This is an expensive life insurance policy. It can cost 5 to 15 times more than term life insurance.
A permanent life insurance policy covers the insured person for life. Also, it builds a cash value, which is why this type of insurance is referred to as an investment.
- Term Life Insurance
Term life insurance is affordable. However, it only covers the insured for a specified period, depending on the insurance policy purchased. A cash benefit is if the policy-holder dies during the agreed-upon period.
Is Expensive Life Insurance a Good Investment?
To see if expansive or permanent life insurance is for you, consider the pros and cons of this type of insurance policy.
Pros
- Tax-deferred cash value
Until you withdraw the money, you do not have to pay any tax on the interest earned on the life insurance policy’s cash value.
- Support during sickness
In case of a severe illness, you can receive a proportion of your insurance pay-out in advance to cover the expenses.
- Borrowing from the cash value
If you need cash for your current expenditure, you will be allowed to borrow some money from the cash value part of your policy. This can be done without paying taxes or withdrawing any money.
- No loss of coverage
With permanent life insurance, you will be covered for your whole life.
Cons
- Cost
Permanent life insurance has its financial benefits, but the premiums are usually very high. Unless you are sure you will need insurance for life, it may not be worth it.
- Tax
If you pass away with unpaid debt, the burden of the tax may fall on your beneficiaries. It may also reduce the policy pay-out.
Is Affordable Life Insurance a Good Investment?
If you’re looking for a more affordable life insurance policy, term life insurance is the way to go. Here is what you can expect from term life insurance.
Pros
- Can be converted to permanent
If you change your mind at any time, or if your financial position changes, you may convert your term life insurance policy to a permanent one.
- Choice
You can decide how long and when you want to be covered by the insurance policy, giving you flexibility.
- Lower cost
Term life insurance has lower premiums than permanent life insurance policies. The premiums stay low as long as you stay healthy.
Cons
- No cash value
Term life insurance is not seen as an investment due to the absence of a cash value. All the premiums simply go into the death benefit.
- Ends when the term ends
In the rare case that you remain alive and the term of the policy ends, neither you nor your beneficiaries get any money.
Should I Get Affordable Life Insurance?
Permanent life insurance policies tend to be pricey. So, if you’re looking for an affordable life insurance policy, term policies are the way to go.
Affordable life insurance is always a good investment that allows for the financial security of your beneficiaries in case of sudden death.
However, the benefits that affordable life insurance gives depend largely on the type of policy purchased.
Final Thoughts
Permanent life insurance is expensive and best suited for those who have many dependants. This type of policy may have good benefits. Yet, the premiums are not worth the price, especially for people who only need to be covered for a set period.
In such a case, a term life insurance policy is affordable and suitable. It supports your beneficiaries for whatever period you want it to.
References:
https://www.investopedia.com/articles/active-trading/120814/life-insurance-smart-investment.asp
https://www.thebalance.com/is-life-insurance-a-good-investment-357230
https://www.nerdwallet.com/article/insurance/is-whole-life-insurance-good-investment