Now I'm going to be frank here and just blurt out that I don't drink coffee, I am an introvert, I read a lot of books and I think about what life would be like without Nutella.
Also, I'm on the side of getting a term life insurance rather than getting those life insurances with investments in them (I'm looking at you VUL and Whole Life). I just basically told you that I'm biased towards term insurance. What am I talking about dare you ask? Read more.
Now, of course, everything in this world has an end and death is inevitable.
You see, the importance of a life insurance is for you to be secured that your family will get the financial support in case you cease on breathing. And my suggestion is that, you only get a life insurance for life insurance purposes and not investment, savings, or any other purposes. Why you ask? Read more.
Let's learn first the types of life insurance:
1) Whole Life Insurance - as the name implies, it will cover you for the rest of your life. And by rest of your life it means 100 years and below in life insurance language. BUT this will only come with little amount of premium and it is very expensive to pay in a given amount of years (Usually 10 years or 20 years). How expensive? Let's say you're 30 years old. Most insurance would put their price in that age around Php 60,000 (Note: prices depends on your age and the insurance company). And that's just for a premium of Php 500,000. If you total that 60,000 in, let's say 20 years you'll be paying Php 1,200,000 all in all. More than that measly premium of Php 500,000. But, of course, you'll get that Php 500,000 in case you die at any point in your life providing of course you don't go over 100 years old. It does, however gain cash value as years go by so it's not necessarily Php 500,000 but it'll take years for your cash value to exceed the premium and payment.
2) Variable Universal Life Insurance (VUL) - is insurance with an investment component on the side. The variable part of the name indicates the part of it which you, the contractor, can decide where to invest (usually in equity, bonds, balance, money market etc.). The universal part is the flexibility of the payment. Unlike Whole Life Insurance, there is no fixed date in paying. You can pay whenever you want in a year. It's considered a permanent life insurance because you'll get payed whenever death comes swinging his mighty scythe as long as their is sufficient cash value to pay for the cost of insurance which also means that there is no maturity age.
3) Term Life Insurance - is an insurance that pays you the premium in case death of the insurance holder happens within the given number of years. If the policy holder dies beyond the covered year, the holder will not get any money. You have to renew your term for you to be covered again. Compared to Whole Life and VUL, term life insurance typically has much greater premium coverage and not a pain in the wallet. Definitely recommended for the DIME Method.
(Note: there are many classifications of types of Insurance. This is just According to its Nature. To learn more go here.)
So why Term Insurance?
Because I and most well-known financial advisers (like Suze Orman and Dave Ramsey) believe in something called Buy Term, Invest the Difference (BTID).
Say for example you're 30 years old. Let's take a look at the match-up:
Whole Life vs Term
Whole Life
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| http://www.ceschini.com.br/2013/05/no-nutella-for-you/ |
Horrible! That's what it is.
Also, I'm on the side of getting a term life insurance rather than getting those life insurances with investments in them (I'm looking at you VUL and Whole Life). I just basically told you that I'm biased towards term insurance. What am I talking about dare you ask? Read more.
Now, of course, everything in this world has an end and death is inevitable.
 |
| http://globe-views.com/dreams/death.html |
"What's that you say? You have dreams? Hahaha! How Naive."
Let's learn first the types of life insurance:
1) Whole Life Insurance - as the name implies, it will cover you for the rest of your life. And by rest of your life it means 100 years and below in life insurance language. BUT this will only come with little amount of premium and it is very expensive to pay in a given amount of years (Usually 10 years or 20 years). How expensive? Let's say you're 30 years old. Most insurance would put their price in that age around Php 60,000 (Note: prices depends on your age and the insurance company). And that's just for a premium of Php 500,000. If you total that 60,000 in, let's say 20 years you'll be paying Php 1,200,000 all in all. More than that measly premium of Php 500,000. But, of course, you'll get that Php 500,000 in case you die at any point in your life providing of course you don't go over 100 years old. It does, however gain cash value as years go by so it's not necessarily Php 500,000 but it'll take years for your cash value to exceed the premium and payment.
2) Variable Universal Life Insurance (VUL) - is insurance with an investment component on the side. The variable part of the name indicates the part of it which you, the contractor, can decide where to invest (usually in equity, bonds, balance, money market etc.). The universal part is the flexibility of the payment. Unlike Whole Life Insurance, there is no fixed date in paying. You can pay whenever you want in a year. It's considered a permanent life insurance because you'll get payed whenever death comes swinging his mighty scythe as long as their is sufficient cash value to pay for the cost of insurance which also means that there is no maturity age.
3) Term Life Insurance - is an insurance that pays you the premium in case death of the insurance holder happens within the given number of years. If the policy holder dies beyond the covered year, the holder will not get any money. You have to renew your term for you to be covered again. Compared to Whole Life and VUL, term life insurance typically has much greater premium coverage and not a pain in the wallet. Definitely recommended for the DIME Method.
(Note: there are many classifications of types of Insurance. This is just According to its Nature. To learn more go here.)
So why Term Insurance?
Because I and most well-known financial advisers (like Suze Orman and Dave Ramsey) believe in something called Buy Term, Invest the Difference (BTID).
Say for example you're 30 years old. Let's take a look at the match-up:
Whole Life vs Term
Whole Life
- You pay Php 60,000 more or less in 20 years with the total of 1,200,000 to pay
- Insurance Coverage: 500,000
- Maturity Age: 100
- By age of 65 you'll probably get 2,500,000 more or less as added cash value if you didn't claim any benefits and bonuses and assuming it has a 4% dividend.
- You pay 3,500 every year for 10 years with the total of 35,000 to pay. (Price often increases every time you aged but it's only for like around 100 pesos so it's not really that big but let's just say it's fixed)
- Insurance Coverage: 1,000,000
- Maturity Age: May vary but let's just say in 10 years.
- By the end of the 10th year, the insurance company will not cover you in case something happens.
So how does Buy Term Invest the Difference come into place?
If we subtract the amount to pay of the Whole life insurance and the term insurance, we get a difference of 56,500. Now, if you decided to get a term insurance and invest the difference in a Mutual Fund (specifically a Bond Fund) for 10 years, you'll probably get more money than you can with a Whole Life Insurance. Take a look at this example:
You invested that 56,500 every year for 10 years with 4% interest per annum, by the age of 65 you'll probably get around 4,200,000.
Let's do meth:
Whole Life: 2,500,000 (Cash Value at the age of 65) - 1,200,000 (Total Payment) = 1,300,000 (What you get)
Term: 4,200,000 (Mutual Fund Investment Value by the age of 65) - 35,000 (Total Payment) - 565,000 (Total Invested) = 3,600,000
3,600,000 (Term) - 1,300,000 (Whole Life) = 2,300,000 is the discrepancy if you decided to take a Whole Life insurance. That's a lot of money you just potentially missed. You see now why you should get a Term Insurance.
In this example, the type of Mutual Funds I presented here is a Bond Fund which typically has an interest rate of 4-8%. The other types are Balance Fund (12%-16% but medium risk) and Equity Fund (18% or more but with a high risk). So instead of investing it in a bond fund and decided to invest it in an Equity Fund you'll probably get around 104 million by the age of 65. Isn't life wonderful if you know how to invest the right financial vehicle?
I'm not honestly the most believable person since you just went to some unpopular blog (but soon to be awesome and earning money) written by some unknown author (except for the ones that are close to me), so I'm going to post videos of people that have proven themselves to be good advisers when it comes to finances:
Suze Orman is a licensed insurance sales agent in 49 States in the US and she really considers any insurance agent who sells VUL or Whole Life an enemy.
You invested that 56,500 every year for 10 years with 4% interest per annum, by the age of 65 you'll probably get around 4,200,000.
Let's do meth:
Whole Life: 2,500,000 (Cash Value at the age of 65) - 1,200,000 (Total Payment) = 1,300,000 (What you get)
Term: 4,200,000 (Mutual Fund Investment Value by the age of 65) - 35,000 (Total Payment) - 565,000 (Total Invested) = 3,600,000
3,600,000 (Term) - 1,300,000 (Whole Life) = 2,300,000 is the discrepancy if you decided to take a Whole Life insurance. That's a lot of money you just potentially missed. You see now why you should get a Term Insurance.
In this example, the type of Mutual Funds I presented here is a Bond Fund which typically has an interest rate of 4-8%. The other types are Balance Fund (12%-16% but medium risk) and Equity Fund (18% or more but with a high risk). So instead of investing it in a bond fund and decided to invest it in an Equity Fund you'll probably get around 104 million by the age of 65. Isn't life wonderful if you know how to invest the right financial vehicle?
I'm not honestly the most believable person since you just went to some unpopular blog (but soon to be awesome and earning money) written by some unknown author (except for the ones that are close to me), so I'm going to post videos of people that have proven themselves to be good advisers when it comes to finances:
Suze Orman is a licensed insurance sales agent in 49 States in the US and she really considers any insurance agent who sells VUL or Whole Life an enemy.
Here's also a video (which apparently I can't show because Youtube) Where Suze talks against VUL
Here's Best Selling Author Dave Ramsey talking about why you should buy Term Insurance:
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