Many financial advisors and other experts suggest that individuals buy term life insurance rather than whole life policies. While you will see a few insurance brokers here and there who will tell you the same, most brokers who work for the larger insurance companies will tell you that a permanent life insurance policy is a better idea. The grounds that they propose whole life over term life policies is largely that they stand to get a larger commission from marketing these policies.

However, why would the company they work for be ready to pay them higher commissions for a whole life or universal life policy’s sale? Well, bigger premiums are paid for the same face amount of permanent life insurance policy that a term life insurance policy would give you.

Why is it that so many people choose whole life policies despite their high premiums? One reason is that permanent life insurance policies will increase in value through time as the buyer builds equity in the policy. The policy bearer can borrow against their equity at very low interest rates and the policy can be cashed in after a certain point for their cash value, which can often surpass the amount of the policy’s coverage should the policy holder die.

A permanent life insurance policy will usually pay the holder a return in exchange for the higher premiums they pay. These returns may be in the form of dividends from the company itself or from profits on stocks and bonds which are bundled with the insurance policy. The higher insurance premiums connected with these policies also cover the overhead costs of administrating these policies.

This may all sound like a great idea to you, and that is why life insurance companies push their agents to sell these whole life or universal life policies whenever they can. They conclude that it’s a win-win-win situation: they win; the broker profits; and the client profits.

As it happens, there are two large problems with these insurance policies. First, life insurance isn’t meant to be a lifelong affair. Second, consumers generally do far better in terms of returns by purchasing term life insurance and investing the difference in price between these insurance policies and a universal policy.

This is how buying term life insurance and investing the remainder works: suppose you meet with an advisor from an life insurance company. They propose that you purchase a $500,000 life insurance policy. A whole life insurance policy would mean paying about $200 in insurance premiums monthly. You ask what a 20 year fixed term policy would cost at the same level of coverage. The monthly cost in this example would be just $37 per month until the policy expires. You determine to go with this policy and invest the $163 remainder monthly in stocks or bonds. By the expiration of the insurance policy, you should have gained far more than the amount of your life insurance policy and no longer require this type of coverage.

Of course another way to go is to use variable universal life insurance, which is a packed mix of term life and tax-sheltered investments. Only that’s another story!

Learn more about term life insurance. Stop by Free Life Term Quote where you can get free term life insurance quotes from all of the top rated companies.