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by Maurie Backman
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When it comes to life insurance, there's no need to overpay.
Check out our picks for best life insurance companies
There's no question that life insurance is important to have. Without it, your loved ones might land in a position where they can't pay their bills without your income.
Imagine you're the sole breadwinner for your wife and child. If you were to pass away without life insurance, you might put a huge strain on your surviving spouse. And even if your spouse were to go back to work, you might have debts, like a mortgage, that they can't cover on their income alone.
That's why life insurance is something you shouldn't skimp on. But you also shouldn't overpay for it. And if you stick to one specific type of life insurance, you should manage to keep your premium costs nice and affordable.
Life insurance tends to come in two main forms -- whole life insurance and term life insurance. With whole-life coverage, your policy remains in place for the rest of your life. If you buy whole life insurance at age 25 and pass away at age 95, you'll have enjoyed 70 years of coverage under that policy.
Term life insurance works differently. With term life insurance, you only get coverage for a specific period of time or term.
Now you have options in that regard, but you'll often see term life insurance policies that are meant to last 10 years, 20 years, or 30 years. The latter option may be a good choice if you have very young children at the time you're putting your policy in place.
One upside you might enjoy with whole life insurance over term life, aside from that never-ending coverage, is that your policy will accumulate a cash value. Term life insurance won't do that.
If you buy term life insurance that covers you for 30 years and you don't pass away during that time, you get no money. With whole life insurance, you can cash out your policy should the need arise, and you can also borrow against it.
The problem with whole life insurance, however, is that it can be almost prohibitively expensive. In fact, if you buy whole life insurance, you might really struggle to keep up with your premiums -- to the point where you risk having your coverage lapse.
That's why Orman insists that term life insurance is the only type the typical family needs. Not only does it commonly provide a nice amount of coverage, but its price point can be far more manageable.
And if you're thinking you don't want to give up the savings component that comes with whole life insurance, remember this. The purpose of life insurance is to protect your loved ones in the event of your passing. Its purpose is not to serve as your personal savings account.
If you get a term life policy, you can take the money you're not spending on more expensive premiums and use it to build up your savings. And that way, you're less likely to encounter a situation where you stop being able to afford your premiums, and your coverage lapses.
Having life insurance is a good thing, no matter which type you choose. But there's a reason Orman insists that term life insurance is the right way to go, and it boils down to affordability. Buying life insurance whose costs are too much for you is a dangerous thing. You're better off getting a term life policy that more seamlessly fits into your budget.
