There are all kinds of options when it comes to utilizing our money. Some people like to spend it, others like to donate it, and many decide to invest.
For some individuals, they prefer a combination of all three.
No matter what a person chooses to do with their money, it’s ideal to understand the different options. What might be good for one person, may not be the best choice for another.
Two popular financial opportunities include life insurance and investing. Both can be helpful, but it’s good to have a basic understanding of each before making any decisions.
What is Life Insurance?
Life insurance protects our loved ones. It does not protect the individual’s own life; it helps our loved ones financially when we pass away.
Insurance takes care of a number of things, depending on the individual.
Life insurance can help with financial dependence, funeral costs, charitable donations, debt relief and more.
There are two main types of life insurance: Permanent and Term Life.
Term life insurance covers a specific number of years, chosen by the individual. E.g. 5, 10 or 30 years. Once the term is up, the individual is no longer covered.
This option offers death benefits only and only pays out if the individual dies while it is in effect. It is the easier and more affordable insurance option; however, premiums do become more expensive as the individual ages.
For those who need more coverage, it can be renewed or upgraded to permanent life insurance if necessary.
Permanent life insurance lasts for as long as the individual lives, no matter how long that may be. This kind of insurance is ideal for individuals with their own estate and estate taxes that need to be paid.
It is the more expensive option of the two and is available in a few different forms. While permanent life insurance offers financial protection, it also accumulates cash value.
This cash value grows over time and can reach a significant amount by the 12-15-year mark. This cash accumulation can be borrowed at any time, and its value is based on how much the return on investment is worth.
Which Life Insurance Option is Best?
Both insurance options are beneficial; however, the differences between them make them ideal for different situations. Those who are trying to decide between the two should consider these life insurance variables.
By taking these variables into consideration, it will be easier to get an idea of what is best for each individual.
Investing is another option for those who want to do something different with their money. The great thing about investments is that there is no required amount that is needed to get started.
People invest with both large and small numerations to begin and have the option to change the investment amount periodically. Similar to life insurance, investing is not a get-rich-quick approach; value is accumulated over time.
The main goal of investing is to see our money grow. Depending on the vehicle in which we invest our money, we may see numbers rise, fall or remain the same.
Many people choose to collect their earnings from investments when the value is particularly high. Other may wait decades before coming back to their investments again.
Some of the options for investing include stocks, mutual funds, bonds and real estate. The various types of investment vehicles have their advantages and disadvantages, which can help individuals choose their ideal investment option.
Some of the differences between the options include who manages the funds, any expenses, fees, costs for accessing money, etc. Doing some research into basic investment information will help individuals to get started on the right foot.
Life Insurance Investment Vehicle
When it comes down to it, some types of life insurance are considered investments themselves. This is because similar to other investment options, some life insurance policies accumulate a cash value over time.
Term life insurance is not a type of investment since the value stays the same until the policy ends. However, permanent life insurance offers that added cash accumulation.
So, what insurance option is best? It depends on each individual’s unique situation.
For those who have an estate or large expenses that will need to be paid, permanent life insurance is best. While the premiums and charges are much higher, this option offers one form of investing that promises growth over time.
It is entirely possible for someone with permanent life insurance to invest both in their life insurance, as well as in other areas.
For those who choose to utilize term life insurance, they will need to choose other routes for investing.
Do I Need Life Insurance?
Life insurance is a must-have for those who have dependents. Families who are financially dependent on the income of an individual will need that security in the case that the individual passes.
Whether some is investing in other vehicles or not, life insurance ensures that loved ones are not left with financial restrictions.
There are lots of choices to be had when it comes to both life insurance and investment opportunities. Both of these components are a great use of money. In many cases, they can both build extra income while also setting up our loved ones for success.
While term life insurance is not a form of investment, the cheaper costs of this option leave room for further investing potential. On the other hand, permanent life insurance is expensive and may limit additional investing.
Consider these life insurance and investing scenarios, which discuss how to spend money based on various types of life insurance.