Cost and longevity are the main differences between term and whole life insurance. However, term life insurance is less expensive compared to whole life insurance.
Term life insurance is a type of insurance that covers you for a specific amount of time and pays you if you die during that time. Whole life insurance covers you for the rest of your life and includes an investing account, making it a more complicated and costly product.
Your loved ones can use the payout — known as the death benefit — on a range of things, including funeral costs, mortgage payments, education costs, and more, with either insurance.
However, one type of life insurance may be a better fit for you than the other, depending on your coverage needs.
TERM LIFE INSURANCE AND HOW IT WORKS:
Term insurance protects you for a set amount of time, such as a ten or twenty-year policy, and it pays out if you pass away during that time. However, your beneficiaries do not receive the money if you outlast the term, and your coverage stops.
The death benefit and your insurance premiums remain the same for the policy’s lifetime. So, the period of your term life insurance policy should, ideally, correspond to the financial commitment you’re covering.
For example, if you’re a new mom, you might get a 20-year policy to cover you until your child is no longer financially reliant on you.
THE BENEFITS OF WHOLE LIFE INSURANCE:
Most people get whole life insurance, permanent insurance that costs more than term life insurance.
Whole life insurance costs more because it covers you for the rest of your life and doesn’t matter when you die. It also has a cash-value account feature that you can use to make money.
A deposit percentage of your premiums fund the account, and it grows over time. You can use your cash value account can be used to borrow money, or you can give up the policy to get cash.
While whole life insurance is more complicated than term life insurance, it is also easier to understand than other types of long-term insurance.
Every month, your premium stays the same. You get a death benefit, and your cash-value account grows at a specific rate when you die.
Because term life insurance is only for a limited time and has no cash value, it is comparatively inexpensive. However, whole life covers you for the rest of your life, has a cash value that grows over time, and is much more expensive.
THE DIFFERENCE IN COST AND CHOOSING BETWEEN THE TWO:
Term life insurance is inexpensive since it is limited and has no cash value. On the other hand, whole life insurance is more expensive because it covers you for the rest of your life and grows cash.
So, for most families, term life is enough. However, whole life and other types of long-term insurance can be helpful in some situations.
Choose term life insurance when:
- You only need life insurance for a brief time.
- You’re looking for the most cost-effective coverage.
- You’re considering permanent life insurance but cannot afford it now.
- You do not wish to utilize life insurance as a vehicle for investment.
Choose whole life insurance when:
- You can afford to pay more for your insurance.
- You wish to leave an inheritance to your family.
- You have a lifelong responsibility, such as a disabled child.
- You want a policy that grows in cash value.
THE BOTTOM LINE:
Having life insurance can provide you with the financial assurance that your family will be financially secure in the event of your death. There’s never been a better moment to buy life insurance. Unfortunately, the cost increases with age, so apply early.