Published on January 28th, 2020
When it comes to life insurance, there are different options to choose from. And while there are different products in the market, a lot of people are only familiar with term life and whole life insurance.
The following are different life insurance products you can consider and reasons why you should avoid whole life insurance like a plague.
1. Guaranteed Universal Life Insurance (GUL)
Guaranteed universal life insurance is a type of policy that combines both term life and whole life insurance. The reason why you should be considering guaranteed universal life insurance is that it provides lifelong protection at affordable rates. The cheap premiums are what sets GUL apart from whole life, although they both offer a similar kind of protection.
Another feature of the guaranteed universal life insurance is that it does not have an investment component, which is the cash component provided by whole life insurance. This feature is what makes GUL more affordable than whole life policies.
2. No Exam Policy
The no exam life insurance policy is a simplified issue for healthy people which provides instant term life insurance. To qualify for a life insurance policy, the insurance company needs to assess your health to determine if you are a risky individual or not. A no exam policy does not require a medical exam, meaning that you will get an instant approval for the policy.
So, with a no exam policy, you can easily get away with your health condition and get coverage. On the downside, you might not get enough coverage with a no exam policy since the insurance company knows nothing about your health hence consider you a risky individual.
3. Convertible Term Life
A convertible term life insurance is a policy that allows you to later convert into a permanent policy. This conversion does not necessarily require a medical exam or health check, and a couple of these policies offer the conversion option for free. A convertible term life insurance is great for you if you want to enjoy low premiums now without worrying about how your future health will affect your insurability.
Another advantage of having convertible term life insurance is that the premiums remain constant. Even when you convert your policy, the premiums remain the same while the plan and the benefit structure change to your preference. Also, after the policy is converted, a maturity benefit is added to the initial death benefits.
Why Not Whole Life?
Whole life is the most hyped type of permanent life insurance policy. The truth is, it is not worth all the fuss around it especially when if it boils down to the policy being a good investment option or not, because there are better alternatives, like the ones above.
One of the reasons why whole life insurance is not a good investment is because it is expensive. When investing your money, you don’t want it to feel like an expense you are paying off. It should be more of a ‘safe haven’ that allows your money to grow.
Also, the stated returns are exaggerated, and you will even end up paying more than what is disclosed in the policy. You will end up paying other ongoing fees, on top of the monthly premiums you are supposed to pay.
Another reason why whole life insurance is not a good investment is that it is rather complex when compared to other types of life insurance policies. For instance, a lot of people don’t understand the concept of building a cash value that can also be borrowed against.
Also, one of the best features of a good investment is flexibility, and whole life insurance does not offer that. This will make it hard for you to make any future changes in case your income changes and you might risk losing your policy completely.
Always Shop Around
Life insurance is a long term decision, so you should always shop around before making a decision. Shopping around allows you to compare the different offers available, and to learn about the different products in the market. This way, you will be able to make an informed buying decision compared to buying the first offer you get.