Like most people, you probably know that quality life insurance is fundamental to a smart financial plan. The reason you might buy life insurance is pretty clear: you want to make sure your family has what they need financially should something tragic happen. At the same time, you don’t want to buy more than you actually need.
If you’ve had time to do a little research, you may have learned that term coverage for a specified amount of time, while whole life is coverage for life. What’s not so clear is why someone would choose one over the other. Here’s a quick recap on both to help narrow your choices as you look for coverage to fit your needs.
Term Life Insurance Is Designed to Be Affordable
Many people choose term life insurance because it’s the most inexpensive option. It offers financial protection for loved ones for a specific amount of time—5, 10, 20 even 30 years from the date of purchase. However, after the term ends, the policy may end, it’s just that simple. In most cases, securing coverage for 30 years is adequate if your goal is to ensure a growing family is protected—at least until dependents no longer need financial assistance.
If you are newly married and planning to start a family, a term policy can replace lost income while your children are young in the event you or your spouse unexpectedly dies. In this scenario, a 30-year term life policy would provide finances to cover every day living expenses, along with debts, like a mortgage.
If you are retired with grown children, a short-term life insurance policy is a smart way to provide funeral and final expenses, removing financial burden that’s often placed on family members for end of life expenses.
Whole Life Insurance Builds Cash Value Over Time
Unlike term, whole life is permanent, meaning you hold the policy until you die, whether it’s 5 or 50 years later. Whole life provides traditional life insurance benefits, but it also includes an investment component.
With every payment you make, your policy’s ‘cash value’ grows tax deferred. And, you can borrow from it if you need to. This means you can use a portion of the funds from your policy to pay for your children’s education, or for retirement without paying taxes on it.
Unfortunately, because of the investment component, whole life insurance is typically more expensive than term life insurance. However, if your goal is to build cash value over the long haul or leave an inheritance to loved ones, permanent life insurance may be a practical choice.
Term vs Whole Life Insurance
- Death benefits only (paid if you die during the term of the policy).
- Most affordable life insurance available.
- Choice of policy length (5, 10, 20 etc.).
- Can be converted to a whole policy.
- Provides lifelong coverage.
- Cash value accumulates over life of policy.
- Cash value can be borrowed.
- Is a popular estate planning tool.
Deciding between term life and whole life insurance is a personal decision that should be made only after careful review of your financial needs and goals. Life insurance is a powerful tool that can provide financial protection, stability and peace of mind during uncertain times.
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