Why You Shouldn’t Spend Too Much on Life Insurance

Life insurance is a gamble. It’s based on the probability that you may die before fulfilling your financial obligations, therefore, leaving your loved ones in a financial bind. Since none of us know when we will die, purchasing a life insurance policy may be called a necessary gamble. Each individual will have to logically weigh the facts and consider how much you are willing to pay for a premium based on the chances of you dying early.

Whole life insurance – the more expensive option

Life insurance is expensive. Whole life insurance policies are even more expensive than term life insurance. With whole or permanent life insurance policies, you’re paying not only for your life to be insured, but you’re also paying for an investment component that adds cash value to your life insurance policy. This extra money paid would be worth it if whole life was a good investment vehicle yielding high returns on your investment. Unfortunately, this is generally not the case. High fees, commission and other administrative expenses that come embedded in whole life policies may cut your annual returns by a percentage of 3 points. In fact, your whole life policy will only accrue cash value several years after your purchase. After doing a thorough analysis of thousands of life insurance policies, James Hunt, an actuary for the Consumer Federation of America, noted that whole life policies rarely yield a reasonable return unless they were held for 20 years or more.

You could do better by investing your money in a no-risk investment vehicle such as IRAs. Mixing life insurance with an investment component is not the best way to make your money grow. Sure, whole life insurance agents will tell you that, in time, you can easily withdraw from your policy when you’re hard up on cash. But at what cost? If you take a loan from your whole life policy, your death benefit will decline (loan amount plus interest on loan). If you have an outstanding loan on your policy, and the policy lapses, you may end up having to pay a big tax bill. If you withdraw the money, instead of borrowing, you’ll pay income tax on all the gains above premiums paid.

Term life insurance – the cheaper option

In contrast, term life insurance is significantly cheaper and offers life insurance in its purest form. You pay an affordable premium against the amount of life insurance coverage you need. Since life insurance needs tend to diminish in time, a term life insurance policy is available for a short period of time, say 5, 10, 15, 20 or even a maximum of 30 years, giving you a timeframe for clearing all your liabilities and accumulating your own investments. In fact, experts say that the money you save by taking out a term life insurance policy when put into a savings vehicle would likely yield more returns for you than the cash accrued on a whole life policy.

So what would be the ideal amount to spend on life insurance? Many experts will say the amount is nil—that’s right zero! According to these experts, life insurance is necessary only if your death would put your loved ones in financial straits, or if you are wealthy enough to pay estate taxes, in which case, a life insurance policy could be used to defer tax payment.

Don’t pay more than you have to on life insurance!

If you need life insurance, the time purchase is it now. Byron Udell, founder of AccuQuote, a life insurance multi-carrier brokerage, operates as an aggregator website to attract online shoppers wanting to compare policies in detail, notes that premium pricing has been falling since 1990 due to longer life spans and lower interest rates. Recently, however, the price of life insurance premiums has started to climb due to economic instability across segments. Most experts believe that those who need life insurance protection should purchase a term life insurance policy now, and lock in those rates for the entire term to avoid paying higher premiums later. If the economy should swing upward, you can always "refinance" your policy to take advantage of better rates.

Why pay more than you have to for life insurance? Your life insurance premiums should be the most minimal amount to cover the exact coverage you need, and you should purchase it from a life insurance company that has a good track record for paying off death benefits in a timely manner. Aggregator websites can help you easily locate the right policy at the most affordable insurance rates. Online life insurance quotes providers often offer discounts, sometimes up to 70 percent on a policy! Don’t pay too much for life insurance—just enough to give you the peace of mind you need knowing your family will be well cared for financially even if you were not there to take care of their financial needs.







About AccuQuote:

AccuQuote is a leader in providing term life quotes to people across the United States. In 1986 it began operating with a single goal: to make the process of buying term life insurance as easy as possible for its customers. Their experienced professionals consistently deliver the most affordable term life insurance rates by comparing thousands of life insurance policies from dozens of top-rated carriers.