Once you understand the differences between term life and permanent life insurance policies, choosing the permanent life insurance option that best meets your needs requires an understanding of the difference between these types of policies.
Many people automatically assume that if they want a life insurance policy that will not expire, they need to purchase whole life coverage . While whole life insurance can be an excellent option, it’s important for consumers to be aware that it’s not the only option for permanent coverage. Before choosing a policy, it’s a good idea to compare life insurance policies carefully so you can be assured of making the best choice for your specific needs. There are several different types of permanent life insurance policies, including:
- Whole Life: This type of permanent life insurance policy offers consumers coverage with a guaranteed death benefit, while providing a means of saving money to cover future expenditures, such as college tuition for your children. As you pay in premiums, the policy will accrue cash value, which you’ll be able to cash in as you see fit, within the terms and conditions of your agreement.
- Universal Life: Individuals who want maximum flexibility often find universal life insurance policies to be appealing. Like whole life, universal life insurance includes both cash value and a death benefit. The policy can be changed over time, to meet the evolving needs of policyholders. For example, insured persons who qualify can opt to increase their death benefit (for additional premium). It’s also possible to make policy changes that result in premium reductions. Many Universal life insurance policies today include a no-lapse provision, which prevents the policy from lapsing even if the cash value portion of the policy disappears due to poor investments of higher than expected insurance costs.
Three Benefits of Whole Life Insurance
Investing in a quality whole life insurance policy with a solid life insurance company is an important part of estate planning for many people. When comparing term vs. whole life coverage, one of the first things consumers notice is the fact that whole life insurance premiums entail a larger initial outlay. Instead of immediately turning to a term policy to save money, it’s important to stop and consider just why whole life coverage might be worth the additional premium to you and your family. Whole life insurance policies offer several significant benefits, including:
- Cash Value: Whole life insurance policies accrue cash value that insured individuals can access per the terms of their particular policy agreement. Many people use the cash value of their whole life policies to help fund the retirement lifestyles of their dreams.
- Permanent Coverage: When you purchase a whole life policy, you’ll have insurance coverage for the rest of your life – no matter how long you live – assuming you keep the policy in place. With this type of policy, your beneficiaries (or you, if you access cash value) will benefit financially from the policy.
- Loan Collateral: Because whole life insurance policies do accrue cash value, it’s possible to borrow money against them. If you’re interested in starting a business, financing a boat, or borrowing money for other purposes, your life insurance policy provides guaranteed collateral for loan approval.
Term vs. Whole Life Insurance:
- Cost: Term insurance premiums are initially less expensive than those for whole life insurance.
- Time Frame: Whole life insurance is permanent, meaning that coverage will be in place no matter how long you live. Term life insurance expires after a predetermined period of time, after which you are no longer covered unless the policy renews at a higher premium or you can, in many cases, convert the policy to whole life or universal life.
- Cash Value: Whole life policies build cash value over time, so insured individuals can reap financial rewards from their own policies. Term policies do not accrue cash value. Return of premium term polices are available, that do repay premiums at the end of the term.
- Collateral: Because whole life policies have cash value, you can use them as collateral for loans. Term life policies cannot be used to borrow against.
- Quote Procedure: Whole life quotes are a little more involved than term life, so you’ll need to provide your insurance agency with more information about yourself and your financial objectives to get accurate price for high dollar value whole life policies than you would for equivalent term coverage.