Term life insurance covers you for a specified time period (typically 10-30 years), while whole life insurance covers you for life.
Buying life insurance can seem daunting. But most people can start shopping by asking themselves one key question:
Do I need term life insurance or whole life insurance?
Both types have their benefits and drawbacks. Term life insurance is affordable and straightforward, while whole life doesn’t expire but is more expensive. Term life insurance is right for most people, and some of the biggest names in personal finance agree and recommend term life insurance. But that doesn’t mean it’s right for everyone, and some people may benefit from whole life insurance.
To decide between term or whole, it’s important to know how they’re different and what makes them right for your financial scenario.
What else do you need to know? Let’s dive in!
Definition of Term Life Insurance
Term life insurance is life insurance. The policyholder pays premiums regularly. If they die while the policy is in effect, their beneficiary (or beneficiaries) receives a death benefit.
It’s very straightforward, which is the selling point for people who want a simple life insurance option.
The key definition when it comes to term life is the term – how long the policy is active. Term life policies expire after a set number of years, making them good policies for anyone who expects to build wealth over time and won’t need the financial safety net life insurance provides later in life.
But the term limit also limits coverage. If you still need that financial safety net when you’re in your 60s or 70s, you’ll need to shop for a new policy (which may be prohibitively expensive).
Term life insurance is also relatively inexpensive. Because there aren’t any additional fees or maintenance, it’s much more affordable than whole life.
Definition of Whole Life Insurance?
Whole life insurance is a type of permanent life insurance, which stays in effect for as long as you pay the premiums. This means you never have to worry about uninsurability or losing your safety net as you get older.
Whole life is more complicated than term overall, but one definition you need to know is the cash value, which is an investment-like product coupled with the insurance policy.
Each month, a certain portion of your premium will go into a tax-deferred savings account, or the cash value of the policy. (The exact amount that goes into savings is determined by your individual policy.) The policy’s cash value grows over time.
You can do many things with the cash value, including taking out a loan, drawing from it for retirement or funding the policy.
If you are interested in term or whole life insurance, please contact us today for more information!