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A 2018 study confirmed that about 60% of Americans were under one type of life insurance. However, a significant percentage of the population is yet to embrace life insurance. One of the contributing factors is a lack of information on the different types of life insurance.
Term life insurance and whole life insurance are some of the options you can consider. If you’re torn between term vs whole life insurance, this article will be resourceful. Keep reading to know which option is best for your family.
Term Life Insurance
Term life insurance refers to a policy that provides policyholders with coverage for a specific period or term. The policy often has a time frame of 10 to 30 years. Term life insurance, also known as pure life insurance doesn’t have a cash value component like the whole life insurance.
If you’re a term life policyholder, your dependents will be protected upon your demise. The insurance company will give payouts to your beneficiaries. It is crucial to assess your family needs to know if the term insurance will be ideal.
You might also want to familiarize yourself with level term life insurance to establish if it resonates with your life insurance needs. With this type of term life insurance, you’ll have the same premiums throughout your contract, but the coverage amount will be increasing. Whichever option of term life insurance that you’ll choose, your health status, amount of coverage, and age will determine your monthly premiums.
When looking for a life term policy, consider buying coverage that will help your family when you won’t be around to cater to your needs. The term life insurance payouts will replace your income to help your dependents pay for services like a mortgage and child care. It would also help to choose a term that will cover for the years you anticipate to pay some of the common bills.
Whole Life Insurance
Whole life insurance is a policy that provides a permanent life cover. When comparing term vs. whole life insurance, the latter seems more desirable due to the cash value component. Whole life insurance has a cash value that will grow gradually without attracting any form of tax.
You can get cash in exchange for the policy, or if you need to borrow money, you can do so against your account. However, failure to pay the policy loans as per the requirements will lower your death benefit. You’ll also lose coverage in case you surrender your policy to get cash.
Whole life insurance is the simplest and most straightforward type of permanent life insurance. The policy premiums are unchanging, and you’ll be sure of a death benefit. More importantly, the cash value keeps growing. It’s not surprising to get a whole life policy that will earn you annual dividends.
Term vs Whole Life Insurance
If you’re still asking yourself ‘what type of life insurance should I get?’ a comparison of term life vs. whole life insurance will give you adequate headway. Here are some of the main differences and similarities between the two life policies.
Whole life and term life insurance policies have level premiums. As a policyholder, your premium payments will remain the same. Your insurance company will give you a payment plan, which can either be annually, semi-annually, monthly, or quarterly.
Some policies further have shorter schedules such as single premiums, which might be liable to larger payments. With this option, it will be easier to have flexibility in your future budgeting.
One of the factors differentiating term life and whole life insurance is the cash value. About 64% of Americans don’t know much about the cash value, which can play a significant role in their choice of a life cover. Whole life policies have a cash value that grows over time, making the cover more expensive than the term life insurance.
Policyholders can benefit significantly from the cash value. However, it’s essential to be keen on its use to avoid adverse implications on your death benefit.
The payouts for both term life and whole life policies are referred to as death benefits. They don’t change, and they are guaranteed as long as you have been honoring your premiums. The death benefits are usually passed to your dependents upon your demise.
However, you might outlive your term life benefits, meaning that you won’t get any payout. You can opt to renew the term life policy, which would be more costly. On the other hand, whole life insurance will provide payout regardless of the time you pass away.
Cost of the Policy
If you’re comparing term vs. whole life insurance, price is a factor you can’t afford to ignore. The cost of the policy depends on several factors, such as your health status and age. You might need to compare quotes from different companies to know which one has competitive prices.
Terminating Your Life Insurance
If you want to end your policy, it’s crucial to contact your insurer. You need to understand the implications of ending your policy in both term life and whole life insurance. With the whole life insurance, your cash value will keep paying for the premium even after you terminate your policy.
Conversely, you can terminate your term life policy, but you won’t get any money since there’s no cash value. It is essential to understand the terms of the policies to know what you stand to lose upon termination.
Comparing Term vs Whole Life Insurance Will Help You When Shopping
Information about term vs whole life insurance is often scanty. Most people don’t understand the two policies. While both term and whole life insurance have death benefits, they have stack differences that you might need to know when shopping for either.
You need to research more about these covers to be confident you’re getting the ideal policy for your dependents. While whole life insurance is quite costlier than term life insurance, the fact that it’s permanent and has a cash value aspect makes it more preferable.
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