The simple answer for most young, healthy people is term life insurance. But to answer that question you need to know the difference between term and whole life insurance. Term is life insurance only, and whole life insurance is both life insurance and some form of investment. You can also find more information at the glossary here.
For most people term, life insurance makes more sense because it is cheaper, and returns on whole life insurance are not always good. Whole life insurance only gives good returns if the policy is held for a long time, maybe 20 years or more. Overall whole life insurance is more expensive, because you are not only paying for the insurance policy, but your are paying for the investment part. For these two reasons alone, term life insurance is the right choice for most people. The investment component of these life insurance policies is often not as good as other forms of investment, because the insurers are experts in insurance, not stocks and mutual funds.
Many people are talked into buying whole life insurance as a good way to invest for retirement. For the most part, however, there are much better ways of saving towards retirement. Whole life insurance policies often have high fees and cost associated with them, as opposed to other retirement plans. For people under the age of 50 and in good health, term life insurance is a much better option.
There are reasons to buy whole life insurance. For wealthy people, this may be a good way of estate planning. A whole life policy can be set up so that a trust from the policy pays all their estate taxes. Other people who may wish to buy whole life insurance over term are people in their 40’s and 50’s who are just now starting a family. But just because someone invested in a whole life policy doesn’t mean they should cash out now and buy a cheaper term life policy. All policies take time to mature, and cashing in on a policy before it matures is a good way to lose all the money invested in a policy.
There are many options to consider when decided on a life insurance policy, and a short article is not enough to make a decision. This is why it is always important to talk to an expert, especially if considering a whole life policy.
