Term vs. Whole Life Insurance: Which One Should You Get?
You may have a family that relies on you for financial support. If you have life insurance, they can go on living without financial difficulty in case you pass away.
Life insurance comes in two main types: term insurance and whole life insurance. Now here comes the tricky question: which one of them should you get and how can you be so sure?
That’s why we’ll define and differentiate them both in this quick guide.
What is term life insurance?
Term life insurance allows the beneficiaries to be granted a sum after the insured dies. However, it’s only applicable for a certain period as agreed upon with the insurance company.
The period of coverage is usually between 10 and 30 years—no more and no less. If you die before the term ends, your family won’t receive anything.
The great thing about it is even though you pay smaller premiums, the death payment and premium price remain the same throughout the term.
What is whole life insurance?
As opposed to term life insurance, whole life insurance covers the insured individual for their entire life.
It will pay out an amount to your dependents irrespective of when you die.
A highlight of whole life insurance is its raising cash value. It provides a safe ground for the person wherein they can borrow money in proportion to their allotted amount—it’s like your work benefits.
However, doing this will reduce the death benefit.
Also, you don’t have to die in order to get the cash. At any time during the coverage, you can give up the policy and get the equivalent cash amount instead.
And unlike term life insurance which almost all insurance firms offer, life insurance is more exclusively offered by a company. And as such, the benefit here is you’ll earn dividends that can be used to raise the policy’s cash value.
Deciding between Term and Permanent Life Insurance
Now, look below to know whether you should choose permanent life insurance or term insurance:
Go for term insurance if:
1) You only want to be covered for a set period
It can cover you up for a max of 30 years. If you die before that time, you’ll still be able to pay the ongoing expenses for your house or support your children for school.
2) You have a smaller budget
With term insurance, you’ll only pay affordable premiums, and all the more so if you’re young and healthy.
3) You want to invest the money you save
This is great if you want some of the benefits of whole life insurance without spending a fortune.
Thus, you can invest what you save in a high-yield savings account, treasury bonds, or other investments.
Go for whole life insurance if:
1) You want to make sure your family will be supported
Because whole life insurance covers you for life, you have utter peace of mind that your family will be supported long after you’re gone by natural means, illness, or an accident.
2) You can afford high premiums
If you want to be insured throughout your life, then you must be able to pay the high premiums constantly till you die.
Otherwise, the policy will lapse or not cover you anymore. Luckily, most insurers give the insured a second chance if they devotedly pay the premiums after that happens.
3) You have a child with a disability
A child with a disability may not be able to completely support themselves. But a life insurance policy can help them.
To know your options for this, you have to discuss this matter with a lawyer or financial advisor.
4) You want its cash value to increase
One of the selling points of life insurance is increased cash value through time as the insurer sets. It will allow you to exchange the policy for cash or withdraw cash from it if need be.