What’s the Difference Between Whole vs Term Life Insurance?
We never want to think about the worse happening to us, but we always try to prepare ourselves and loved ones for it. One of the ways we can prepare everyone is by getting life insurance.
If you are here it means that you’re looking for a life insurance policy for yourself or a loved one but, you’re lost with all the technical mumbo-jumbo. You might’ve heard about whole vs term life insurance but, what is the best option?
Don’t know where to start? We’ve you covered.
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Life Insurance Basics
Preparing yourself and others for when the worse happens is one of the most difficult things we can do. Getting life insurance can work as a safety net for when we aren’t around anymore to take care of our loved ones.
When you buy a life insurance policy, you’re paying the insurance company to pay a benefit to your loved ones upon your death. Before getting this policy, you should analyze the standard of living your dependents and your financial situation. If you aren’t sure how to do this, we recommend you discuss it with your financial planner to get a clearer idea.
Your primary options when it comes to life insurance are whole life term insurance and term life insurance. Before we go into how to decide between these options, we’ll discuss both types of life insurance, so you get a clearer idea of what we’re talking about.
What Is Whole Life Insurance?
When you buy a whole life insurance policy, you’re paying an insurance company to pay a lump sum benefit to your loved ones upon death. This policy provides lifetime protection. This means that it will be valid during the policy owner’s life.
Many people prefer this type of policy because the premium remains the same during your lifetime and the added cash benefits. The premiums for these policies can be paid in a single payment or fixed monthly basis during the lifetime of the owner. What makes whole life insurance policies different is the cash savings with accruing earnings, known as cash value.
The good thing about this is that the policy owner can take loans on the cash value. Most of the time, these loans are at a minimum guaranteed rate of interest. Also, policy cash values are liquid, tax-free up to the total premiums paid and can be put as investment collateral.
Yet, you must be mindful that if you don’t repay the loans you take, you’ll reduce your death benefit. This type of insurance policy lets you surrender it for the cash but, remember that if you do this you’ll lose your coverage.
Some policies may earn you cash dividends. You can use these to repay your policy, deposit them to earn interest, repay policy loans, or take them in cash.
What Is Term Life Insurance?
If you buy term life insurance, you’re paying the insurance company for the death benefit to your loved ones during a specific term. This means that if the policy owner passes away during the set term, their beneficiaries will receive the payment from the insurance company.
These policies are also known as pure life insurance because it’s designed for premature death. To determine the cost of the term life insurance policy, the insurance company uses the age, health and life expectancy of the policy owner. If the policy expires before the owner’s death, the insurance company won’t issue a payout.
When the term expires, you can renew your policy, switch to a permanent coverage or allow the policy to lapse. The common terms for these policies are 10, 20 and 30 years.
In contrast with whole life insurance, these policies don’t have any other value. This means that when you get it, you’re paying only for the guaranteed death benefit.
You won’t be able to get loans or earn any accruing earnings. These insurance policy premiums are lower than whole life insurance policies because of its duration.
How to Decide Between Whole vs Term Life Insurance?
Deciding between whole or term life insurance is less complicated than it sounds. To make an informed decision, you must do your own research first. You must analyze your needs and your life insurance options before shopping for your insurance policy.
A financial planner or insurance agent may guide you through the process. But, you are the one who knows your needs and what safety net you want to leave your loved ones.
An example is if you’re a parent looking for a way to make sure your family has a home even if you die unexpectedly. In this case, a term life insurance might be a good option. Do you need to cover your income for a certain term?
Do you need a budget-friendly life insurance policy? Are you thinking of getting a permanent life insurance policy later? If you answered yes to these questions, term life insurance might be your best option.
If what worries you the most is your budget, a whole life insurance policy may not be the best option for you. But, remember this policy provides a long-term benefit.
So it may cost you a lot more than term life insurance, but it will provide a lifetime benefit for your loved ones. Another option you may consider is getting a term life insurance policy and later converting it to a permanent insurance policy. Click here for more information.
Can You Get The Right Life Insurance Policy?
Yes, you can get the right life insurance policy. Choosing between whole vs term life insurance should be less complex than it sounds if you stick to the basics. Remember to focus on your needs and do your own research.
If you aren’t sure where to start, we recommend that you contact an insurance agent. They can guide you through the process and tell you more about your options.
Getting life insurance isn’t an easy process because we’ve to consider the unthinkable happening. But, it’s always better to be safe than sorry. We always want our loved ones to have a safety net and, this insurance can give us that ease of mind.
Want to learn how to choose the right life insurance for you?
Check our blog post to learn more.
