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Money

The www.FedPrimeRate.com Personal Finance Blog and Magazine

Friday, April 16, 2010

Life Insurance: Do You Really Know What You Need? Term vs. Whole

Life Insurance: Do You Really Know What You Need? Term vs. WholeSome people are plain grumpy. Teaching a night course on Personal Finance at a local college painted my memory full of stupidity from one specific student. My other students were great and as a class we learned a great deal. Even Ms. Grumpy would eventually come around.

It just so happened I was much younger than Ms. Grumpy and this was my first adult teaching experience. I kept my cool and told the class from day one, "We all have something to learn, and if you can save yourself money from this, I have done my job." The big break came in about week 5, when we were on the topic of life insurance. I started class off with a short little introductory lecture on Term Life Insurance vs. Whole Life Insurance.

Each time in your life requires different life insurance strategies; and knowing these strategies will save you money on the policy you purchase.

  1. Term and Whole Life Insurance both cover expenses in case of death.

  2. Whole Life Insurance costs more because it is also a way for you to invest your money.

  3. Term Life Insurance is for a set period of years and with the lower premiums, you can invest your money your way.

Whole life insurance makes insurance companies money, that is why many insurance salesman push Whole Life Insurance. Term life insurance is cheaper and does provide for your dependents in the case of your death.

There were a lot of glossed over faces looking at me, when Ms. Grumpy said,"I have a lot of money, I am divorced, my kids are out of the house, I have Whole Life Insurance, and I know how to invest myself." "So I should get Term Life Insurance." I replied, "If you weigh the price and length of the polices and if you have enough discipline to invest the remaining money, then, yes."

I could tell she was mad, but luckily this time it wasn't at me, but her Insurance company who had been selling here Whole Life Insurance for the last 4 years, when she could have the same protection under a Term Life Insurance Policy. It was a great moment, Ms. Grumpy in her own way had learned something from the new teacher.

Saving money in our budgets adds up in many different ways. Depending on you life situation, re-evaluating your Life Insurance needs could be one way to free up some extra cash for investing or paying down debt, while still giving you the protection for yourself or your family.

I wish the story of Ms. Grumpy would have a happy financial ending, but when we got to the investing unit, finding out she had all her eggs in Corporate Bonds because they paid a 8% interest rate, would not let that happen. She said here is where all my money is and it is safe. That will be for our next story. Life Insurance is a necessary evil. Finding the right coverage can save you money and allow you to invest the way you see fit. Keep in mind, Insurance Companies make a lot of money, but as a consumer you decide how much of yours they will get.

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