What Is the Difference Between Whole Life and Term Life Insurance?
Tuesday, February 4, 2020
Thinking about life insurance can be scary, but once you settle on the right life insurance plan for your situation, it can provide you and your family with peace of mind knowing that you can still offer them support after you are gone. Life insurance provides your dependents with financial support upon your death that they can use how they see fit, including funeral expenses, rent, or debt. There are two types of life insurance: whole life insurance and term life insurance. Simply put, one protects you for your entire life, and the other has an expiration date. It can be challenging to determine which type is right for you, which is why we are here to help you decide so you can sleep soundly knowing that your family is protected.
What is term life insurance?
Term life insurance, also known as pure life insurance, provides coverage for a limited amount of time. The terms typically range from 10-30 years of coverage and can be renewed if needed. If you die within the determined term, your beneficiary receives a payout to help with expenses. On the other hand, if you outlive the term, the insurance company pays nothing. Term life insurance is more affordable than whole life insurance due to the sheer fact that people often outlive these policies.
Term life policies are ideal for people that only need life insurance during a select period. For example, if you recently had a child, you might want to purchase term life insurance for 20 years. This policy would ensure that your child would be taken care of should you die prematurely, and upon its expiration, your child would ideally be supporting themselves.
Term life insurance is also beneficial for individuals that have consumer debt or mortgage debt. Whatever your situation is, the most important thing to consider when you are purchasing term life insurance is the timing. Be sure that your policies end-date corresponds with when your family will no longer need financial support.
What is whole life insurance?
Well, you guessed it, whole life insurance covers you for your whole life! This means that regardless of when you die, your beneficiaries will receive a death benefit. In addition to providing you with permanent coverage, whole life insurance includes investment benefits known as the policy’s cash value.
Not only does the cash value grow over time, but it is also tax-deferred, meaning you don’t have the pay taxes on it as it accumulates. In case of an emergency, you can also borrow against your cash value or cash out the policy entirely, which would end your coverage. Of course, if you choose to borrow against your cash value, you reduce your death benefit and are expected to repay the policy loans with interest.
While not guaranteed, in some cases, you can also earn annual dividends when you have whole life insurance. These dividends can be cashed, collect interest in your account, be used to repay policy loans, or go towards your premium.
Whole life insurance provides you peace of mind that your family will be taken care of regardless of when you die. It also provides you with additional financial benefits that can be very helpful for some situations. Whole life insurance can be the right choice for many families, including those that have life-long dependents or those that choose to use their life insurance benefits as a form of inheritance for their children.
While these benefits are appealing to many families, they also come with a hefty price tag when compared to term life insurance. The cost corresponds with the fact that at some point, the insurance company will have to provide your family with a death benefit versus term life insurance where frequently, the insurance company never pays out.
How do you know what insurance option is right for your family?
Still not sure which option is right for you? No worries. We understand that determining what type of life insurance you need for your family can be difficult, and we are here to help you with every step of the way. Our team of experts is skilled at finding the best coverage for our customers at an affordable price so that they can sleep soundly, knowing that their family is taken care of.
Ready to get started? Contact us today.
