The loss of a spouse is unthinkable. In the event of the unthinkable happening, life insurance can make a major impact at a difficult time. According to the LIMRA 2018 Insurance Barometer Study, 35 percent of families report that they’d feel the financial impact within one month of the loss of the primary earner. If you’re shopping for your first (or a new) policy, take a look at what you need to know about term versus whole life insurance.
What Is Term Life Insurance?
As the name says, term life insurance is a policy that covers a specific term. While every policy is different, typical terms include decade-long blocks such as 10 years, 20 years, 30 years, or more.
This type of policy is ideal if you’re looking for protection in the event of a premature passing. Some insured families choose a term that covers the time when they’re children are young, living at home, or entirely financially dependent on them. Given that the estimated cost to raise a child through age 17 is more than $233,000, this added financial benefit provides a family with much-needed replacement income.
The death benefit is only paid if the insured spouse passes away before the end of the term. The exact amount varies by policy but will not grow over the course of the term. If the term expires while the insured person is still living, the family will not receive the payout. You may choose to stay uninsured (which isn’t advisable) or you can buy a new policy.
What Is Whole Life Insurance?
Unlike term life insurance, whole life insurance lasts for an entire lifetime. This is considered a permanent policy and won’t expire after a set number of years. These policies typically grow financially over time. The rate of growth varies, depending on which policy you choose.
While term life insurance is fairly straightforward (you pay a premium and in the event of a death, the beneficiary receives a specific benefit), whole life insurance can get complicated. Work with an insurance expert to demystify this type of policy and give you the type of insurance that meets your financial needs.
Which Policy Is the Best Choice?
There’s no easy answer to this question. Every person, and every family, has different needs. Policy choice often depends on:
• How many working adults are in the family (one breadwinner versus two working spouses)
• How old dependent children are
• The family’s current finances
• The family’s projected finances
• Retirement or other savings
• The age of the insured parties
• The health of the insured parties
• Whether you want to help your heirs pay for estate taxes
• If you have an adults child with special needs (making them financially dependent on you)
• You have a spouse and multiple adult children
• You want to leave money to your heirs, but also plan on using your entire retirement savings
This isn’t a finite list of considerations to make. As you go through the policy selection process, the insurance professional will guide you towards the type of insurance that makes the most sense.
Which Type of Life Insurance Provides the Best Payout?
Again, this question doesn’t have a clear-cut answer. If you are short on cash right now, a whole life insurance policy may price you out of the market. But a term life policy may make it possible for you to purchase insurance.
The specific death benefit or payment made when the insured person passes away depends on the policy itself. You can find a variety of options for each type of policy, and an insurance agent can help you to choose the payout benefit that makes sense for your needs.
Do you need life insurance? Contact Family Insurance Centers for more information.