Rabu, 20 Januari 2010
Permanent Or Term Insurances?
There are many insurance companies in the world giving their life insurance quote.
It's pretty difficult to pick which one is the best. What should you do? One strategy that'll work is to keep switching insurance companies. Any company will make more money by selling to people who are more price sensitive.
A person needing an insurance may be willing to pay high. A person who keeps switching insurance shows that he is price sensitive and hence, he will get a lower price.
Your life is not the only thing you can insure. You can also insure your house and your car. There are many websites offering free car insurance quotes and home insurance quotes.
There are usually two types of life insurances.
Term insurance is paying the life insurance while betting that you'll die. You bet $2,000 per year. If you die during that year, you win, say, $1 million dollars. If you don't die, there goes your $2,000.
Life insurance has a major drawback -- You get to die first before you can get your money. So many insurance companies combine life insurance with some form of investment. Is this a good idea? Most of the time, it is not.
Permanent insurance is insurance with savings. Say, you paid $20,000 per year for 10 years. If you die within that10 years, you'll get $1 million. However, at the end of the 10 years, if you fail to die, you still get your $200,000 back, often with interests.
Your insurance agent will usually encourage this. Why? Because they get more commission out of this. Why? Because insurance companies make more money out of this arrangement. Why? Because it's not good for you, at least usually.
First of all, this is not an apple to apple comparison. Say you pay your life insurance to get $1 million dollars. Maybe you got to pay $2,000 per year. With compound insurance, to get a $1 million dollar settlement, you need to pay $20,000 per year, but only for 10 years. Usually, the insurance agent will make things even more confusing for you by offering $100 million dollar compound insurance for $2,000/year.
So how do you make it apple to apple? You compare the permanent insurance with regular term insurance plus regular investment. So, the permanent insurance of $20,000 per year is equivalent with $2,000 term insurance and $18,000 per year investment. If you buy the $2,000 term insurance and invest the $18,000 per year, how much money you'll make after 10 years? A simulation shows that you'll make $286,874.
Now, is permanent insurance a good insurance? Well, just compare that $286,874 with what you'll get back under the term. Usually you'll get less. When you get less, the insurance company makes more. So insurance companies provide greater intensives for the insurance agent to sell permanent insurances.
However, permanent insurance have one advantage. Tax benefit. Your assets can accumulate free of tax. Also, regular investments will often be subject to inheritance tax while insurance may not be.
So a good strategy is to simply buy permanent insurance with $0 coverage. They'll compare the ROI of the permanent insurance apple to apple. Hence, all mutual funds will turn to insurance company providing effectively the same service. It's good, it works, it's productive, and hence governments prohibit that, of course.
You can check out whole life insurance quotes on the web.