Getty Images
Life insurance, like all other types of insurance, provides protection and security when things go wrong. In the case of life insurance, this would be the death of the policyholder. By ensuring that a policy is in force, the insured has helped alleviate any potential financial burden (at least, for a certain period of time) by providing financial support in the form of a life insurance payout.
How Much Life Insurance Should Someone Have? it is subjective, however, and may depend on a number of personal factors. The type of life insurance policy chosen is also specific to one’s personal circumstances and preferences. There is no single type recommended for everyone. This is why it is helpful to understand the difference between the two at most Popular types of life insurance: whole and term.
If you are currently in the market for life insurance, or simply want to increase the coverage you already have, now is a good time to do so. You can get started by getting a quote today.
Before deciding on the type of insurance policy you want, make sure you understand how the two main types work.
Whole life insurance versus term
There is no one-size-fits-all answer when it comes to life insurance. You may already have some type of life insurance chosen for you by a spouse, family member or employer. But understanding the differences between the whole and the term can help you make the right decision.
Whole life insurance
Whole life insurance tends to be more expensive because you have more options. Commonly known as permanent life insurance, this type remains active for the lifetime of the insured. There is no policy expiration date. Consequently, premiums are relatively high.
But there is another factor to consider with whole life insurance: the money and investment aspect. Some life insurance policies pay a dividend. You can also build up the dollar value of the policy and cash it out to use for other expenses, debt and beyond. This type of life insurance should also be seen as an investment – as the extra money the insurance company has received from premiums is invested for you.
In short, whole life insurance is more expensive, but the benefits can be worth it. If you are interested in exploring your life insurance policies, there are many companies waiting to help you. Get a price estimate and choose the type of policy that’s best for you and your family.
Term life insurance
This type of coverage is self-explanatory. It is limited to a chosen term or time frame of your life. It will not last for the lifetime of the policy holder and will need to be renewed. Terms can be 15, 20, 30 years or any other agreed time frame. If the policyholder dies during one of these terms, then the policy is paid out to the beneficiaries. If they do not, and the policy is not upgraded for another term, then no payment will be issued.
Because of the time constraints and the fact that the payments are not invested and do not earn a cash value, term life insurance premiums are generally cheaper than whole life insurance. But every time you renew, expect premiums to go up. This is doubly true if you become ill or experience a high-risk medical condition during one of your terms.
Differences between whole life and term life insurance
Ultimately, both types of life insurance provide your loved ones with financial protection if you die. When you buy life insurance, you can list one or more beneficiaries and determine how you want to distribute the proceeds. While whole life insurance may seem to offer the best route, it does not necessarily mean that it is the best option for the policyholder.
To summarize, here are some key differences between the two policies:
- Length: A whole life insurance policy is not dictated by predetermined time limits. On the other hand, a term life insurance policy includes coverage between a specific time period (usually between 10 and 30 years) chosen by the policyholder.
- The cost: If you’re looking strictly for cost, term life insurance may be the way to go. Of course, it won’t last forever and, by definition, will only provide coverage for a selected term. But maybe that’s all that’s needed. This is especially true for young people or those just starting a family who are looking for protection but don’t want to break the bank in the process.
- Ready money worth: With whole life insurance, you can receive a dividend or withdraw a portion of the cash value (note: it’s usually a good idea to let your money grow before taking this action). Term life insurance has no cash value.
Regardless of where you fall on this spectrum and what your personal preferences and circumstances are, most financial experts agree that it’s smart to have life insurance. Whether it is complete or complete is not as important as simply having the protection in place.
Remember, policies can always be adjusted and preferences change (especially as policyholders age), but coverage and protection for you and your family remains vital.
Still not sure which type of life insurance is right for you? Get a quote and explore your options today.