Apr 22, 2015
Life insurance provides peace of mind and a safety net for your family—but which policy do you need? There are two main options, term life insurance and whole life insurance. Keep reading to learn more about each policy.
Term life insurance covers a fixed time period. If your policy is for 20 years, the coverage will end when that time period is up. The premiums for term insurance policies are usually lower than whole life, and they stay the same throughout the term of the policy. When the term is up, however, coverage will expire and premiums may increase when/if you decide to renew the policy.
Whole life insurance coverage lasts until your death—whenever that may be. The premiums are higher than term life premiums, but they never go up and coverage never runs out.
Whole life insurance policies have the added benefit of cash accumulation—term life insurance policies offer no such benefit. The cash accumulated is available before you die through loans or partial withdrawals. Cash accumulation shouldn’t be used to replace retirement savings, but it can help you pay for things or be used to lower your premiums.
Both policies offer benefits and drawbacks—choose the right policy by evaluating your individual situation and needs.
Term life polices are usually best for younger people who have low incomes, but a high need for life insurance. Someone in their 20s or 30s with a young family, mortgage, and low retirement savings has more need for a life insurance policy than someone older and wealthier. These policies are usually less expensive because it is less likely that the insurance company will have to pay out benefits. Term policies are designed to provide short-term coverage.
Whole life policies are better for older, established people. If you already have your home paid off, and a good retirement savings, your family will have less need for life insurance benefits. Whole life insurance polices provide long-term coverage, but they are usually more expensive because the insurance company always has to pay out benefits.
If you started with a term life insurance policy when you were younger, consider converting it to a whole life insurance policy later in life. You can often convert policies without a medical examination. This helps you transition your policy as your needs change.
Life insurance is a wise investment—consider your age, obligations, and long-term goals when you decide between term and whole life coverage. Both options provide protection and peace of mind—choose the best option for you.