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What type of life insurance is best for me

what type of life insurance is best for me


Best Answer: Life insurance is not an investment contract. It is a insurance contract in which you agree to pay your premiums on time in order for your beneficiary to receive the death benefit in case you die. So your life insurance is never paid up. The only way its paid up is if you selected a payment option and it says 20-Pay Whole life or Life Paid at 60, which is not normal. This is where you pay more premiums now so that the premiums you would of paid for lifetime would be enough so that you can stop paying in the future date. If your whole life policy doesn't say this, then it is never paid up. There is nothing free in this world. Something has to give. If you stop paying at age 65, your cash value will be used to pay for the life insurance. As your cash value goes down, so does the death benefit.

Some things you should know about whole life insurance:

1) No cash value is accumulated in first 2 years, so you have negative rate of return in the beginning.

2) Your cash value grows at a low rate of return of 3-4%.

3) You may borrow the cash value with a loan interest of 6-8%. This will lower the death benefit.

4) Cash value grows tax-deferred.

5) You lose all cash value when you die.

For your situation, you should consider a 30 year or 35 year term insurance for yourself. I personally own a 30 year term insurance and bought it age 23. For $250,000 coverage, it only cost me around $30/month for it ($360/year). Even though I'm single and no one is dependant on my income, I bought it anyway for my parents. In case I die, they can use the extra money for retirement.

You said you want to save money for

retirement. You should open an IRA (depending on your income, you may qualify to open a Roth IRA as long as your Adjusted Gross Income is below $110,000 (if you are single. If you are married, it has to be below $160,000). I own a Roth IRA and put only three mutual funds into it. You can fund your IRA with any kind of investment as long as it is offered at the financial institution (you can put bonds, mutual funds, money markets, maybe CDs, and maybe even stocks). Though I don't recommend you put CDs or stocks into your IRA. CDs have a low rate of return of 3-5% and stocks are highly volatile. What I mean by volatile is that you can make lots of money or lose lots of money.

Before investing into mutual funds, you should read the prospectus carefully. First you should find out what you want from your investments. Do you want high growth (for your age, this should be your objective)? Do you want the mutual fund to generate income while having some growth (meaning it pays out dividends and capital gains often)? Then you can narrow the choices of mutual funds that meets your investment objective.

Now you need the prospectus. What to look for in the prospectus:

1) What is the mutual fund investment objective?

2) How did it perform in the past?

3) What is its expense ratio? (you want to pick the ones that has a low expense ratio)

4) What is its turnover ratio? (again, pick the ones that has a low turnover ratio)

5) Who manages the mutual fund and how much experience do they have?

6) What is its sales charge?

To sum this all up, get rid of your whole life policy. Buy term insurance. Open an IRA (Roth or Traditional). Invest consistently, no matter how the stock market performs.

Category: Insurance

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