Buying life insurance has always been a safety net for families to take care of loved ones after someone passes. Family members can use the funds to cover everything from funeral costs to mortgage payments to college tuition and other expenses, making it an important investment.
But what kind of life insurance do you need? Do you choose term life or whole life? What’s the difference?
The Main Types of Life Insurance
There are two main types of life insurance. First, there’s term life insurance, which is an easy to understand plan that comes with the lowest prices. Whole life insurance is a little more complex and tends to cost considerably more than term life insurance. However, it builds value over time.
Life insurance can be customized for individual protection. This level of freedom to choose the right coverage for you and your family can help to plan for the future.
Today, there are many variations of term and whole life, plus universal life and variable products that are tied to the stock market. It is best to speak with an experience broker to determine the best fit for your family’s specific needs.
Here, we explain the difference between term life and whole life.
Term Life Insurance
Term life insurance provides coverage for a specific time period, or term. It’s designed to protect only your dependents in case you die prematurely. If a term life insurance is obtained and the purchaser dies within that time period, their beneficiaries receive the payout.
Those who buy the policy choose the time period when they purchase it. Common terms usually come in at 10, 20, or 30 years, and with most policies, the payout and cost usually stay the same throughout.
When shopping for term life insurance, it’s important to choose a term that coincides with the years you’ll be paying bills and want coverage in case you die early. It’s also important to buy an amount that is adequate to provide for the family. The payout could replace income and help a family pay for services.
With term insurance, once the policy expires or cancels for nonpayment of premium, the benefit no longer exists.
Whole Life Insurance
Whole life provides lifelong coverage and accumulates cash value, an investment component, up to its date of maturation. There are tax benefits associated with whole life products.
Purchasers can borrow money against the policy or surrender the policy for its cash value. However, if the purchaser doesn’t repay the policy loans with interest, they’ll reduce the death benefit, or payout. Premiums for whole life are generally higher than for term life.