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| Term
insurance vs. cash value life insurance | | Term
life insurance pays out in the event of death. Cash
value, which is more costly, has a cash
amount you can withdraw before death. Which one is
for you will depend on your circumstances. First
answer an insurance question - how much life insurance
should you buy? Then look at the financial
aspect – what type of policy should you buy? The amount
of life insurance you need may be so large
that the only way you can afford it is by buying term
insurance, which carries a lower premium than
cash value policies. If your ability (and willingness)
to pay life insurance premiums is such that
you can afford the desired amount of life insurance
under either type of policy, you can consider
the financial decision - which type of policy to buy.
Important factors affecting the financial
decision include your income tax bracket, whether the
need for life insurance is short-term or
long-term (20 years or longer is long-term), and the
rate of return on alternative investments. If
you view life insurance as an investment, you’ll want
to study rates of returns. If it’s protection,
then your purchase is a matter of what you can afford
and want to
spend. |
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