Determining which kind of life insurance is the right fit for you and your family can feel daunting, but it doesn’t have to be.
If you’re looking for long-term coverage or are interested in an added savings element, whole life insurance could be the right choice.
However, if you’re only looking to assure that your family is covered should something happen to you while they are still young, a term policy may be for you.
Learning about the coverage options that are available will help you decide which type of life insurance is the best fit for you and your family.
Whole Life Insurance vs Term Life?
What’s the difference between whole life and term life insurance? Imagine it as the difference between buying a house and renting.
While it may cost more to buy a house, and be a bigger commitment, after years of payments you are left with something to show for it. Something that belongs to you.
However, if you’re not looking for any kind of permanent reward or ownership and just want a roof over your head, then renting may be a better choice for you.
The permanence of a whole life policy – along with an added savings element – make it a very attractive package, but that package comes with a higher price tag.
Adversely, a term policy may not offer permanence or a savings element but it does cost much less, which makes it a popular choice for people who only want coverage for a specific amount of time.
Those who want affordable coverage in order to assure that their young family will be able to function normally if they are to pass away should consider a term life insurance policy, which will typically last long enough to make sure that they are covered.
However, for those who want to be sure that their premium payments will go towards guaranteed benefits for their loved ones, are in need of life insurance coverage that is guaranteed into old age, or want their life insurance policy to have an investment element, whole life is the path to take.
Whole Life Insurance
A form of “permanent” life insurance, a whole life policy it covers you for a lifetime.
Paying out death benefits to your beneficiaries regardless of when you pass away – be it tomorrow or in sixty years – whole life premium payments remain consistent and predictable, even if your health declines.
Whole life offers not only lifelong death benefits but also the added advantage of a cash-value savings account. When you make a payment, a portion of your premium is put into an investment account known as the “cash-value” which you can borrow against should the need arise.
Advantages of whole life insurance:
- Lifelong protection assuring that your policy will never expire or go down in value.
- Guaranteed death benefits for your beneficiaries.
- Steady premium rates that won’t increase.
- Cash value from a portion of your premium payments which build as a savings account, which you can borrow against.
Term Life Insurance
A temporary form of life insurance, a term life policy covers you for a predetermined period of time.
Usually lasting from somewhere between one and thirty years, a term policy is designed to pay out death benefits to your loved ones should you pass away within that term.
For example, if you were to opt for a 20-year term, the premium payment amount that you set up at the onset of your policy will remain fixed for the 20-year life of the policy.
After the 20-year term expires, so does your coverage and your fixed-rate.
Advantages of term life insurance:
- Guaranteed death benefits for your loved ones should you pass away during the predetermined period of coverage.
- Lower premium rates that won’t increase for the life of your policy.
- No long-term commitments.
Benefits of Life Insurance
Regardless of which type of policy best fits your families needs, if you pass away during the life of your policy your loved ones will receive death benefits which can be used in a number of ways.
Death benefits from life insurance policies can be used to:
- pay for funeral or unexpected medical expenses
- help provide for a loss of income for your family
- cover short-term debts
- provide additional income during child-raising years
- pay off a mortgage debt or help pay for a college education
- Choosing which life insurance policy is right for you is an important decision that should not be made with haste. However, it is a choice that should be made.
Talk to your insurance agent about your unique situation and needs to help determine what type of life insurance is the best fit for you.