Company Life Insurance
One of the most essential parts of financial planning is buying the right types of insurance policies. Some companies provide employees with life insurance as a benefit. Usually it is Term Life insurance and it is based on a multiple of your annual salary. For example, it could be as much as five times your annual salary. Theoretically this would allow your family to survive for 5 years without you… giving them time to get prepare financially.
So, if you have a spouse or children to worry about, life insurance is a must. But there are disadvantages to employer provided life insurance. Why would you choose to pay for something you can get for free?
What’s the Difference Between Term and Whole Life Insurance?
The biggest difference between term and whole life insurance is what you get for the premiums you pay. With term life insurance, you or your employer, is paying specifically for a death benefit and nothing more. The insurance company gets a certain amount of money for premiums, and then they give your loved ones a death benefit if you die while the policy is in effect. This usually means while you are employed there. So if you become disabled and can’t work you could end up losing your life insurance jsut when you need it most. At that point you may not be eligible for coverage from a new policy.
With a whole life insurance policy, that you own, you get permanent life insurance coverage. This type of policy is going to pay out a death benefit as long as you keep paying your premiums. With a whole life insurance policy, you will be able to provide your family with some kind of financial benefits when you die as long as you keep paying the premiums, even if you aren’t employed.
In addition, with a whole life insurance policy, you not only get a death benefit, but you also get a cash value. Part of your premium amount goes to pay for the death benefit and part goes to the cash value component. The insurance company essentially takes part of your money and invests it into various securities. If you became disabled you could borrow against the cash value to continue paying the premiums even if you were unemployed.
The decision that you have to make is whether you are going to need life insurance coverage for your family later on in life. If you have small children at home and a spouse, most of the big debts that they’ll have to deal with occur early on. After 20 or 30 years, your mortgage should be taken care of and the kids will be grown up and out of the house. At that time, you may have some savings built up and your spouse may not necessarily need of benefits from an insurance policy but in the early years you might want to buy a whole life policy in addition to the term life coverage provided by your employer.
Cost Differences between Whole Life and Term Insurance
One of the big differences between whole and term life insurance is the cost of premiums. As a general rule, term life insurance premiums are much cheaper than what you will pay for whole life insurance premiums. In some cases, you can get term life insurance for half of what it costs for a whole life insurance policy of the same death benefit. This makes term life insurance a favorite of individuals who do not have a lot of extra money to throw around. And in the case of employer sponsored life insurance… free is hard to beat.
Ultimately, you have to decide whether you want the additional security and portability of your own whole life insurance policy. The decision is not necessarily either/or. Since employer sponsored life insurance is limited to a certain amount you can always buy additional whole life coverage so that if you die while covered by the company policy your family just gets more coverage but if you are no longer covered by the company policy you will at least have some coverage for your family.
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