Life insurance is considered a necessity on the same level as food and clothing.
No matter how important it is, many people still ignore how important it is. Let’s say, a father who is the sole breadwinner of his family suddenly dies in a car accident.
What would happen to the rest of his family when he was unable to leave something to them. His life may have been over but the bills, mortgage, and other expenses never end.
If you don’t have a life insurance policy, now is the perfect time to educate yourself on the different types of life insurance available in the market.
This article will help you find the best life insurance policy that fits your lifestyle.
Let’s have a closer look at the different life insurance options available.
Whole Life Insurance
With the same purpose as any other life insurance product, whole life insurance provides protection to individuals or businesses that you want to be your beneficiaries at the time of your death.
Whole life insurance is permanent life insurance also known as cash value life insurance, which is also one of the two categories of life insurance – the other one is called term life insurance.
Permanent coverage can cost 15 times more than a term life insurance policy with the same benefit amount. This amount can vary depending on the length of the term and the features and type of permanent product.
The main difference between these two life insurance products is that whole life insurance is more permanent because not only it provides death benefits, but you can also get a cash value during the life of the policy. On the other hand, term insurance covers the death benefits only.
Here are other characteristics of Whole Life Insurance:
- It provides lifelong coverage and includes cash value.
- Death benefit is guaranteed
- Can be purchased at a higher amount
- A great option for estate planning
- The cash value depends on how much is the return or investment
- You have the option to withdraw or loan the cash value during the life of the policy
- Has a much more expensive premium compared to term insurance but can guarantee more savings over the life of the policy
- It can take 12 to 15 years to build up a decent cash value
Some drawbacks of whole life insurance
- If you give up your policy too early, the cash value will be very low because only a small percentage of your premium goes to the savings account. The rest of the amount goes to paying administrative fees and agent’s commission
- If you withdraw from your savings account or get a loan from a legal moneylender, expect to be charged with penalties, administrative fees and other charges like a tax penalty which can eat up your savings made from your whole life insurance policy.
Term Life Insurance
A Term Life Insurance gives coverage to its policyholders for a certain period of time. Also known as “pure life insurance” because it serves as a protection to your surviving family in case of your sudden death. If you decide to get a term policy and die within the term, your beneficiaries will receive the cash payout. Other than that, it doesn’t offer any value.
The common terms to buy the policy are 10, 20 or 30 years. In choosing term life insurance it should correspond with the years you will be paying the bills while having life insurance coverage in case of your premature death. You should buy an amount your family would need when you are no longer able to. The payout could be a substitute to your income and will help your family pay their bills as life goes on.
Here are the other characteristics of Term Life Insurance
- Term Life insurance can be converted to whole life insurance
- After you age 50, term life insurance becomes more expensive
- The term should be renewed if you want the coverage to be extended more than the term length
- It can be used as an additional coverage temporarily with a permanent life insurance policy
- Provides death benefits only
- Easy to acquire and most affordable
Comparing whole and term life insurance
Now that you have a much clearer view on the difference between whole life and term life policies, you are probably thinking of comparing them side by side for you to decide which of these two policies suits you and your family’s needs.
You can start by comparing the cost of each life insurance. Ask yourself these questions – How much money you need to shell out to acquire one of these policies? and “What are the long-term costs of whole life policy and term life policy?”
Here’s more detailed information to help you decide which insurance policy to choose:
Choose term life if you:
- Want an affordable coverage
- Want a permanent life insurance policy but can’t afford to pay for it. Term life can be converted to permanent coverage eventually. There is just a deadline for conversion that varies by policy.
- Need life insurance to suffice the needs of your family for a certain period of time – such as until they graduate college or pay off your mortgage.
Choose whole life insurance if you:
- want to leave inheritance money for your family to pay final expenses such as funeral costs
- Want to provide money for your heirs to pay estate taxes so they don’t have to worry where to get money to pay for those.
- Have a child with special needs that can be considered as a lifelong dependent. You can consult your attorney or financial advisor in setting up a trust.
- If you are planning to leave a property or a business to one child. Whole life insurance can meet the needs of your other children.
What to consider before choosing Whole Life or Term Life insurance
- Your current age
- Your current health condition
- Age of your children
- Your current debts
- Financial needs of your family members
- Long term health expenses in times of a serious illness
- Future needs of your family such as paying for your children’s college education
- If you have a plan to set up a trust as a part of your will
Now that you have consumed more information about whole life and term life insurances, this will help you make an informed decision. But the most important thing is, do not wait for an unfortunate event that will push you to get life insurance. Tomorrow is not promised, so it is better to be prepared for yourself and for your family.
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