Asset Management Discussion Post 7 – Coursework Example
Asset management discussion March 20, Asset management discussion Life if full of uncertainties that insurance seek to cover.Life insurance covers death, compensates beneficiaries in case of death of a policyholder, and existence of many life insurance policies requires understanding of relative values of available policies. Term insurance and permanent insurance, such as whole life insurance, are the wide categories of life insurance policy and their features identify better value in term insurance.
One of the advantages of term insurance is its lower initial premiums, compared to those of whole life insurance covers, and this is more significant for young people. High initial cost and other costs are barriers to insurance and other planned expenditures and the advantage allows people to take covers. Term insurance is also convenient for meeting short-term needs than are permanent insurance covers because a holder can target the period of need, such as during disasters, and restring the term insurance to it. Permanent insurance would however compel a holder to invest in premiums even when identified risk no longer exists and this makes it a discouraging and unnecessary investment. Term insurance is also easy to purchase (Gitman, Joehnk, and Billingsley, 2015).
Disadvantages of whole life insurance, a permanent insurance, also justify preference for term insurance. Derivable protection from permanent insurance, per unit dollar, is lower than protection from term policy to identify greater economic value in term policy. In addition, whole life policy is more expensive because of such costs as sales commissions and marketing costs that do not generate any benefit to a policy holder Gitman, Joehnk, and Billingsley, 2015).
Even though term insurance may have disadvantages, in as much as whole life insurance may have advantages, financial feasibility, derivable benefits, and convenience of term policy makes it a better option.
Gitman, L., Joehnk, M., and Billingsley, R. (2015). PFIN 4 (4th Ed). Boston, MA: Cengage Learning.