Deciding which type of life insurance product is right for you can be difficult; regardless of whether you’re considering retaining your current policy or you’re shopping for new coverage, it’s important to note that there are benefits to both term life insurance and whole life insurance. Which is the best fit for your needs, preferences, lifestyle, and family?
There are some key differences and similarities between these two types of coverage. As for similarities, they both offer a guaranteed death benefit, and they both offer generally federal tax-free benefits. But let’s consider some of the differences between whole life insurance and term life insurance.
Whole Life Insurance and Its Value
Whole life insurance premiums are generally higher initially than those for term life insurance because those premiums are guaranteed to stay the same for the life of the policy. A whole policy offers tax-deferred cash value accumulation, which you can access through partial surrenders or policy loans. This growth is dependent upon premiums being paid, as well as your eligibility to earn dividends, and grows very slowly. The dividends are also usually not guaranteed. Therefore, you can borrow against the value of your policy by way of a loan, and use the funds for any purpose. However, if any policy loans aren’t repaid with interest, the death benefit is reduced.
The Value of Term Life Insurance
Term life insurance, on the other hand, offers much lower, inexpensive premiums initially that are guaranteed for that initial term; this makes term life insurance a popular choice for those who need coverage at a low rate now. There are privileges that are often available with many policies; these would enable you to convert a policy that builds cash value without the need for additional medical underwriting.
Terms are usually designed for anywhere from one to 30 years, with the most popular coverage term being 20 years. With most policies, the premium is going to remain the same through the duration of the term, so if you purchase a 30-year term policy, the premium you pay wouldn’t increase during that 30 years. Many people appreciate the ability to change the length of their policy, which is unavailable with whole life insurance plans.
To Choose Whole or Term Life Insurance?
Your personal situation is going to be the best determinant of which type of policy is best for you. Whole life insurance might suit you best if:
-You need coverage at higher, but steady premium for the rest of your life
-You want to provide money for heirs to pay estate taxes
-You want to make inheritances equal
-You want to spend your retirement savings and still leave money for things like funeral costs
Term life insurance, on the other hand, would best be suited for these candidates:
-You want the most affordable coverage
-You need permanent life insurance but cannot afford it
-You want a policy that you can convert to permanent coverage
-You need life insurance to only cover a certain period of time, such as while you’re raising children or paying on your mortgage
-You have a family that needs life insurance coverage
Since different types of policies are best suited for different people, and even at different stages of their lives, it’s important that you obtain the right kind of coverage. For answers to your questions about the various types of policies available, and to shop for life insurance quotes online without obligation or divulging sensitive information, browse the Education Center of our website.