Life Insurance can get a bad rap because a lot of people “sell” insurance. Almost all insurance products have a commission built in to the premium that gets paid to the agent. SO, the larger the premium, the larger the commission. This leads SOME agents to focus on more expensive premium products instead of finding the RIGHT product for you.
Now that I’m off my soap box, Life Insurance is really important when utilized properly. You are paying the insurance company to help take on the risk of providing for your family, business, or to help you accomplish your charitable goals once you’re gone. Now how much you pay and for how long is another conversation.
There are 2 primary kinds of Life Insurance, Term Insurance and Permanent Insurance.
Term insurance is like a rental, the insurance company will provide a set Death Benefit, for a certain term (length of time) for a fixed premium. So it could be $1million policy, for 30 years, for $100 per month for that 30 years. At the end of the term (30 years here) you can continue to keep the policy, the premium payments go WAY up.
Permanent Insurance comes in many different shapes and sizes. Variable, Whole Life, Universal Life, and many different variatons of those. You always have it as long as you make the premium payments. Permanent Insurance usually can accumulate some sort of cash value which can sometimes be used to pay future premium payments, take that money back out (could trigger interest or taxes owed), or increase the death benefit. If there is enough cash value in the policy, sometimes that cash can support the premium payments so you don’t have to pay into the policy anymore (sometimes called paid-up or paying for itself). That cash value does have the opportunity to even grow!
As you can imagine permanent insurance comes with a higher premium because it has more benefits than term insurance. As you guess, that higher premium pays the agent a higher commission which can sometimes push people to sell these over term. That does NOT mean that a permanent policy is not right for you, there are lots of reasons to have permanent insurance. You just don’t want to pay the higher premiums for permanent insurance if all you really need is Term!