Term Life Insurance versus Cash Value Life Insurance

There are two types of life insurance a person can buy – term life insurance or cash value life insurance. Each has its own advantages and disadvantages. Here are some tips to help you decide which is best for your needs.

With term life insurance you pay premiums to cover the cost of the insurance that will be paid out when a death occurs. As you get closer to retirement the coverage shrinks because the amount of money you contribute to the family lessens due to children leaving the house and less income being generated through work. Eventually, if you live past the length of the policy your family members don’t get any monetary benefits.

Cash value life insurance on the other hand offers a savings aspect that can last your whole life and also provides a tax shelter. You have to pay to set up a savings plan and its investment. You also have to pay an agent’s commission to set it up. You should be prepared to keep this policy for at least 15 years for it to make financial sense. In the cash value life insurance policy part of your premium does go to actual life insurance, but the rest goes into your cash value account. You can use these savings to supplement your post-retirement income as well as leaving it to your beneficiaries. However, you need to make certain that the account is passed along in your will.

If you want to have life insurance for the rest of your life and you have a considerable income then choosing a cash value life insurance policy may be the best decision for you. This way your life insurance stays active and your beneficiaries can also use the money left in the account when you go.

However, if you are simply looking for the most amount of coverage for the least amount of cost then a term life insurance policy is a better choice. You can purchase the term life insurance and use the money saved in premiums to invest in stocks, bonds and mutual funds. A downside is that these premiums increase over the years, making it less and less affordable as you get older.

Life insurance is not a simple purchase because of all of the variables. The best way to decide which type is good for you is to decide how long you want to keep the policy. If you are going to have it for less than 10 years then generally you should go with term life insurance. If you want it for more than 20 then cash value is often the better option. As for the gap in between you should find an expert that can help you run a term versus cash value analysis for you to help you make the best decision.