Life Insurance: Differences Between Whole and Term
If you have recently decided to purchase life insurance to protect your family or for other financial reasons, congratulate yourself. Buying life insurance is often one of the best financial decisions you can make. If you have not, or are still deciding, you are in the right place.
If you don’t know by now, you will soon see there are many types of life insurance policies and life insurance can be used for a variety of reasons. No matter what your end goal, there is life insurance that helps you meet it.
The two major types of life insurance are known as whole life insurance and term life insurance. Here we will discuss what they are, how they work, and which one may be right for you.
Whole Life Insurance: The Basics
Whole life insurance is a type of permanent life insurance. The point of a whole life insurance policy is to ensure the financial security of your loved ones upon the event you are no longer around to take care of them.
Whole life insurance has two significant benefits: It provides a payout to the beneficiary upon your death, and it contains an investment feature that offers some unique advantages.
The investment benefit has to do with the cash value of the policy. The cash value of the policy grows over time, and those gains are tax-deferred.
Some benefits of a whole life insurance policy include:
- You can borrow against the value of the policy or surrender the policy for cash. However, if you don’t repay the loan, it gets deducted from the amount of the death benefit.
- Your premium payment remains the same over the life of the policy.
- The death benefit or the amount the policy pays when you die is guaranteed.
- The cash value grows slowly but at a guaranteed rate
Term Life Insurance: The Basics
Term life insurance provides life insurance coverage for a predetermined amount of time. For example, you can select a term life insurance policy for 10, 15, 20, or 30 years.
A term life insurance policy is designed to protect your dependents if you die prematurely. The logic is that if you select a 30-year life insurance term policy when you have a child, by the time the term expires, your child will be well into adulthood, financially secure and won’t need the assistance of life insurance for security.
But, if something happens to you during the 30-year term, your child can receive the death benefit making sure they are taken care of until they can take care of themselves.
Considerations when selecting a term life insurance policy
As stated, a term life policy is meant to expire at the same time you no longer need the insurance. This could be signaled by your children becoming self-sufficient, your home is paid off, or the fact that you have accumulated enough savings to secure your family’s well-being even after your passing.
So, keep some things in mind when you select a term life policy:
- Select a term for your policy that corresponds to the number of years your family needs your income for financial security.
- Select a policy limit that would be enough to take care of your family’s financial needs if you are no longer there to support them. Consider the things you provide for now such as mortgage payments, child care expenses or other living expenses.
Some Benefits of Term Life Insurance:
- Affordable premiums that remain the same over the policy term
- Flexibility in the length of the policy
- The payout is guaranteed
Deciding Which Type of Life Insurance is Right for You
Both term and whole life insurance policies have advantages. The type of policy you select will depend on your needs and what outcome you wish for.
Consider a Term Life Insurance Policy if:
- You want the most affordable type of life insurance.
- You have a tight budget for insurance but want to protect your family’s financial security.
- Your family will only depend on your income for a limited number of years.
Consider a Whole Life Policy if:
- You want to leave an inheritance for your family no matter when you should pass away.
- You have a family member that will depend on your financial support for life. For example, a child or relative with special needs.
- You want to make sure your beneficiaries don’t have to liquidate any estate assets to take care of tax bills or other expenses upon your death.
Getting Informed on Life Insurance
No one likes to think about death, but we all have a responsibility to do just that. Make sure you understand your life insurance options and protect your family in case the worst does happen.
To learn more about Whole Life and Term Life Insurance policies, contact the experts at Demont Insurance Agency at (850) 942-7760. Our licensed insurance experts will be happy to answer any questions you have.