Term insurance covers a person against death for a limited time, the term. You pay for the coverage period and at the end of the term the contract, or policy, expires. If no claims are made against the policy during the term, you don't receive any benefits after the policy expires, just like auto or homeowners insurance.
Whole life insurance also called permanent insurance, is permanent and does not expire assuming you continue to pay the premiums. While whole life insurance provides coverage similar to term insurance, it also provides an investment vehicle.
A portion of your monthly premium goes toward insuring your life while the other goes toward an investment account. This investment account can be either an interest bearing account or a stocks and bonds investment account.
How much insurance do you need?
Deciding upon the amount of insurance that you need may be difficult to do; as there are many conflicted details. Often the amount of the monthly fee for the policy will be the determining factor.
The general rule of thumb is to insure for 2 to 6 times your income for the period of the policy.
For example, if you have a policy for 1 year and you earn $50,000 a year you would want $100,000 to $300,000 coverage. Even this rule is flexible, as your current needs and situation must temper it. Perhaps your children are about to start university and that the tuition will be $40,000 to $80,000 depending upon the school that they go to. In this case you need to add the cost of the tuition to your income before determining the appropriate amount of coverage you need.
Term life insurance is a valuable tool designed to protect your family and assets for a specific period of time. There are many reasons why you may wish to consider term insurance. Perhaps you are planning on travelling for a year or you are undertaking a new business venture. Term life offers affordable reasonable rates, flexible coverage and peace of mind.
