Maybe I just don’t understand what they’re doing. BUt it seems to me if I take out a 10 year policy that costs $100 per month, I’m betting that I’m going to die within that period of time and the company is betting that I won’t or that they won’t have to pay out. If I get to the end of that 10 year term, then I’m just out $12,000. What am I missing?
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Are you comparing a term life insurance policy to not having a life insurance policy, or to a whole life insurance policy?
Well, I guess I’ll answer for both.
Life and death can be pretty uncertain. Life insurance is a system where if you die someone (usually spouse or a kid) get money. The idea here is that they get money because you are not there to provide support anymore. So having a life insurance policy means that they are “protected” against financial loss because of your death.
Ultimately some folks will resort to a smaller life insurance policy once their kids are grown or there is hopefully sufficient reserves for a spouse’s retirement etc. In other words, if nobody is dependent on your anymore for support the necessity of a life insurance policy may be diminished, just at time as health is getting worse.
Anyways. A whole life insurance policy is both insurance and an investment vehicle. The premiums are much higher, and the commission to the salesperson is also much higher. There can be some long term security involved, in that the money built up in the investment can be accessible even before death. The details vary by insurance policy. With your $100 premium for a term insurance policy example, a whole life policy might be like $500. And yes, it doesn’t run out after a certain number of years.
The very generic run of the mill financial advice is to get term life insurance and invest the difference (in this case $400 per month) into mutual funds or something and then the end result would be similar, except you would pay less in administrative fees than you would with the whole life insurance policy.
I know several people who heard this advice, went and got the term insurance policy, and then never invested the difference.
Which ever method you choose will probably work out just fine, as long as you are covering your bases.
Cheers
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