Are you in the market for life insurance? Then one of the first decisions you will need to make is whether to purchase whole life insurance or term life insurance. What do these mean and how can you choose the right product for your own circumstances? Here’s what you need to know about whole and term insurance.
What Is Term Life Insurance?
Term life insurance is a life insurance product designed to cover a person for a specific number of years. You purchase coverage that provides a death benefit only, meaning the beneficiary or beneficiaries are paid upon the passing of the insured. This type of insurance is familiar to most Americans, as it operates similarly to other types of common household insurance, such as vehicle insurance.
Premiums generally start out low and rise as the covered individual ages and their risk increases.
What Is Whole Life Insurance?
Whole life insurance has both an insurance component and an investment component. The insured pays a monthly premium, a portion of which is often invested in order to provide a return above and beyond the death benefit. As with term insurance, you get the death benefit – but you also have access to additional financial features.
Whole life insurance’s premiums generally do not rise as you age, making them more affordable the longer you hold the policy. If you choose to keep the policy for your entire life – as it’s designed – the amount paid in premiums will eventually be exceeded by the investment value. You may, however, cancel whole life insurance when you choose and receive its cash (surrender) value refunded.
What Are the Pros and Cons of Each?
Both whole and term life insurance start with the same basic feature: insurance against your passing. The advantage of whole life policies, though, lies in their extra features. Once the cash value has grown, you can often take out a loan against it, for instance. The cash value also builds as a passive and nontaxable investment, adding to your overall savings or retirement plan.
Whole life insurance is often good for estate planning purposes. It can be used to balance inheritances between heirs or to fund a trust for a child who needs lifelong support. Anyone who expects their estate to owe state or federal estate taxes might consider this policy to pay those taxes rather than taking away from the hard assets of the estate.
On the other hand, term life insurance’s biggest appeal is its simplicity and cost-effectiveness. Because it only provides one payout upon your death, the premiums for term insurance are much more affordable than whole life.
The term life product is also simple to understand and use. And since most people only need life insurance to provide for anyone dependent on their income (such as supporting minor children), term coverage provides a natural sundown to life insurance coverage after 10, 20, or 30 years.
Where Can You Learn More?
Although both term and whole life insurance cover the same basic goal – insurance to replace your income if you pass away – they approach it in very different ways. The right choice for you depends on what goals you have for the policy.
Someone looking for a basic and inexpensive insurance product may benefit from simple term coverage. However, someone who wants to achieve other financial goals as well might opt for the more complex whole life coverage.
The best place to start making this decision is to meet with a knowledgeable insurance agent in your state. Family Insurance Centers can help. We offer a variety of policies to meet the needs of all Floridians. Call today to make an appointment or learn more.