Term vs. Whole-Life Insurance: What is Right for Me?
Life insurance is something you likely don’t want to think about because in doing so, you are contemplating your mortality. However, it is vitally important to your family that you have some sort of life insurance protection in place. Otherwise, you leave them behind to not only go through life without your presence but afford to pay bills and maintain a lifestyle upon which they have come to expect, without your income.
Regardless of whether you purchase this protection through an employer or get a policy on your own, you will mainly be choosing from two types of life insurance policies, those being term and whole life. Read on to learn the differences between and two and discern which is best for your situation:
Term Vs Whole Life Insurance, Which is Right For You?
In both cases, loved ones can spend the payout (also known as the death benefit) as they wish. This means they can spend the money on funeral expenses, mortgage payment, college tuition, etc. So, which type is right for you?
What is Term Life Insurance?
This type of insurance coverage is applicable for a set period of time or a “term” of between 10 and 20 years. It pays out if you die within the term.
Pros of Term Life Insurance
Term life insurance is more affordable to purchase than the whole life variety. Consequently, it can be a great way to provide coverage to your family when your children are young and you are just starting out in life.
Cons of Term Life Insurance
If you outlive the duration of your term life policy, your family will not receive any benefits from the policy. When your term expires, you can renew your coverage with another term plan, but the cost could be significantly different if you have any new health issues or other factors that could alter the price.
What is Whole Life Insurance?
This type of insurance coverage is applicable for lifelong coverage and pays out regardless of when you die. It even has a cash-value aspect that is an investment component of the policy.
Pros of Whole Life Insurance
The death benefit or payout of whole life insurance is guaranteed. This means there is no “term” that exists that you have to die within the confines of for your family to benefit. Whole life insurance also has a cash-value aspect, meaning you can borrow against the cash value or surrender the policy for cash.
Cons of Whole Life Insurance
Whole life insurance is a bit more complicated than the term variety. It is also significantly more costly to purchase due to its life-long provision and cash-value aspect.
How to Choose: Term Life vs Whole Life
Only you can truly determine which option is best for your needs. In many cases, your decision will be based primarily on what you can afford and what needs you are trying to cover in your absence.
Choose Term Life Insurance If:
- You only need short-term coverage: As mentioned above term policies are ideal for young families with lots of financial obligations, like mortgages and other expenses that pertain to raising young children.
- You want the most affordable option: A term policy is the most affordable option for life insurance.
- You would like permanent life insurance but can’t afford it currently: In many cases, your term policy can eventually be converted into permanent coverage, perhaps when you are better able to afford the coverage.
- You aren’t seeking an investment: You just want life insurance, not an investment.
Choose Whole Life Insurance If:
- You can afford the higher premiums: Whole life insurance is a lifelong commitment and will lapse if you cease making payments.
- Want to leave money to heirs: Since whole life insurance pays out regardless of when your death takes place, you can leave your heirs money through your estate when you pass away.
- Have a lifelong dependent: If you have a child with disabilities, for instance, whole life insurance can be a way to provide for that child even when you are gone.
- You want an investment with guaranteed cash value: You can safely invest in a whole life insurance policy that grows at a guaranteed rate.
Bottom Line: Purchase Life Insurance, Either Term or Whole
We hope that the points outlined above have helped give you some context on what type of insurance policy is right for you. Either way, you are never too young to purchase life insurance. Reach out to our team of insurance professionals to learn more about what type of plan would best suit your needs.