While you may find it a difficult topic to even think about, life insurance is an essential part of a solid financial plan, especially if you have a spouse and a family, or plans to start one. Most people find it a challenging topic to discuss with their loved ones and as a result, life insurance may be overlooked. In addition, it’s not exactly the most exciting way to spend your money. It’s fun to buy a new house or a new car, but life insurance doesn’t have the same appeal. According to financial experts, though, life insurance should be a mainstay in every family’s basic financial plan. Although it may force you to think about your eventual passing, it can also provide you with peace of mind in knowing that your loved ones will be taken care of financially. Here are some important points to consider as you consider taking out a new policy.

Whole-Life Insurance Policies

There are two main types of life insurance: whole-life policies and term insurance. A whole-life policy is permanent; it combines an investment fund with lifetime coverage and pays a fixed amount on your death. The insurance company invests a portion of the annual premium you pay in order to increase the cash value of the payout. This premium usually stays fixed throughout the entire term of the policy. When investigating whole-life policies, you will find that there are a variety of different types of investments and accordingly, some policies do not guarantee returns.

Term Insurance Policies

Term insurance policies, on the other, hand, do not have the investment aspect that whole-life policies have. You purchase life coverage over a predetermined term. There is a monthly premium and the policy is renewable each year. Unlike when you initially take out a policy, renewal of the policy is not dependent on proof of good health status. For young people, term insurance is very inexpensive, offering hundreds of thousands of dollars of coverage for a few hundred dollars in annual payments. Naturally, premiums increase with age.

Purchasing a Policy

Like many other insurance products, life insurance is extremely competitive. Agents are driven by commissions and in the case of both whole-life and term insurance, approximately 80% of the premium paid during the first year is pocketed by the agent.

However, given that annual premiums on whole-life plans are within five and ten times more than term insurance premiums, agents make significantly more when they sell a whole-life policy. This is something to keep in mind when speaking to an agent. The agent may try to persuade you that a whole-life policy is better because it doesn’t have an expiry date; however, today it is possible to easily find terms that extend for 20-30 years. In addition, whole-life plans often involve hidden commissions and fees. If you cancel the plan, even fifteen years after opening it, you’ll be unlikely to see any of the cash. Most financial advisors recommend purchasing term insurance and choosing to invest your money as you see fit.