Comparing Whole vs Term Life Insurance So You Don’t Have To
Once you get married or have children you should start thinking about getting a policy. But, the question you and many others have is what kind should you get, whole or term life insurance. Today we’ll compare the two so you can choose which type of life insurance is best for your needs.
Providing for your family is one of the most important jobs you have. That is why choosing the right type of insurance is essential.
Knowing insurance is important doesn’t make it any easier to choose the right option. Term life insurance and whole life insurance are necessary for ensuring that your family will get a nice settlement should anything happen to you.
Choosing between the two can be a bit confusing especially if you are worried about rates. Statistics from 2015, show that consumers between 18 to 35 overestimated the cost of insurance by 213 percent!
Even if you do not fall into this age group it is likely you may end up paying less than you think, so don’t let the fear of high rates deter you. Here is a guide that will help you to make the right choice for you and your family.
1. What is Term Life Insurance?
Term life insurance gives you coverage for a specified amount of time. It’s often referred to as pure life insurance because it will only pay out once you die.
You can choose the term of the policy. For example, you can choose a 10, 20, or 30-year term. If you die within the term you have chosen, then your family will get a payout.
It is wise to choose a term that will coincide with the number of years that you will be working and paying bills, such as your mortgage, child care or even college tuition. This ensures that if you die prematurely your family will get a payout. This will replace your income and help your family pay for their necessities.
A great benefit of this policy over whole life policies is that the premium tends to be cheaper.
2. What is Whole Life Insurance?
Whole life insurance policies give you long-term coverage and have an investment component. This investment is a component of the cash value of the policy. The policy grows slowly, and taxes are not paid on any gains you make.
You can even borrow money while alive against the policy. For example, you could borrow against it to pay a medical bill if you don’t have medical insurance.
You can even surrender the policy to get cash if necessary. However, whatever loans you take out against the policy must have the accumulated interest paid out or you’ll see a reduction to your death benefit.
One of the benefits of this policy is that the premium is always the same, although they are a bit higher than term life policies. You are also guaranteed a payout to your dependents at death and the cash value grows at a sure rate.
3. Term Life vs Whole Life
Now that you know what each insurance policy guarantees. Let’s make a final comparison.
Here are the major differences between term life and whole life insurance:
- Term life provides a choice of policy length, whole life does not
- Whole life policies will give you prolonged life coverage while term life won’t
- A whole life policy will develop a cash value while a term life policy doesn’t
- Term life policies tend to carry lower premiums than whole life policies
Here are the major similarities between the two policies:
- Premium remains the same for the duration of the policy
- There is a guaranteed payout amount
Whichever life insurance coverage you choose the key is to make sure that it is right for you and your family.
Whether you choose whole life or term life insurance is a matter of personal need since there are some similarities but also major differences between the two policies. Whichever you choose, having coverage is essential for the well being of those who depend on you.
If you would like more information on insurance policies, please contact us. We are always willing to help you to find the right policy for your needs.