No one likes the thought of dying young in an accident or becoming disabled and unable to care for his or her family. The fact is, however, that these things happen, and it is imperative to be prepared so that your family will be taken care of in the event of an unforeseen circumstance.
Life insurance plays an enormous role in creating an estate, which will be sufficient to help the widow to raise and educate her children and to have an income for herself when the children are grown so that she can maintain her own independence. Further, life insurance has become very important as a means of conserving the substantial estate in this age of high estate and inheritance taxes.
But now let us look at insurance from the point of view of an investment for the individual. What does insurance offer him? What kind of return can he personally get from the different kinds of coverages offered? What kind of a policy can we realize the best return without having to die in order to get it?
While there are innumerable kinds of life insurance available, they can be simplified into two general types: those that insure against death only and those that not only insure against death but make a provision for savings in addition to insuring. The first type is called term insurance. It pays off only in the event of death. While it is worth nothing to the individual himself, since he never gets his hands on any of the money that went to pay the premiums, it does generally provide the maximum death benefits per dollar of premiums at the younger ages. Its sole purpose is to insure against death. As its name implies, it is written for a term1, 5, 10, 20, 25 or 30 yearsand if the term expires before the insured dies, that is that. There are no more premiums due and he gets nothing from the insurance company except the right to renew the policy for a longer term and/or the right to convert the policy to permanent insurance without a medical examination.
Policies other than term insurance cost more than term insurance initially and the additional premium provides essentially one thingsavings for the person insured. Now the main question to answer from an investor's point of view is, "What do I get for this additional premium in the way of a return on my money?"
Possibly the best way to determine the yield or return on insurance is to compare different kinds of policies purchased at different ages. Since the rate or premium and what you get in the way of a return for paying this rate both depend on the kind of policy you purchase and your age when you purchase it, a table has been prepared covering the different types of policies purchased at three different ages25, 40 and 55.
There is no rate of return possible on a term insurance policy. It pays off only in the event of death, and it pays the face amount of the policy. If you buy a five-year term insurance policy in the face amount of $1,000, your estate will be paid $1,000 in the event your death takes place in the five-year period. At the end of five years you have no more insurance coverage and nothing in the way of cash value for the premiums you have paid in. If you live, term insurance is the most expensive insurance you can buy in the long run.
Term insurance might be the best option for some people in certain situations, but before making a decision to buy a term policy, it's important to take into account all of your options. It's always best to do your own research online or speak with a financial professional before making any of these life-changing, and, for your family life-saving, choices.