Maybe you're waiting for your first child, getting married or just working to build a trench around your financial system – these are all good reasons to consider life insurance.
When you're ready to invest in life insurance, you're bound to various questions. How does life insurance work? How much coverage do I actually need? Do I want a term or a whole life insurance?
When making such decisions for your family and finances, it always helps to sort out the advantages and disadvantages of life insurance and the many different insurance types you can buy before signing on the dotted line. But life insurance buyers often grapple with a significant choice at the start of their decision -making process: Should I go buy a whole life or a term life insurance?
What many insurance buyers tend to oversee is that their answer is based mainly on the reasons they need life insurance.
What is term life insurance?
Given the amount of debates concerning buying term life insurance, we wanted to present a few ideas for you to contemplate and decide for yourself. While some individuals tend to see term life insurance as a total waste of money, others argue that you should buy term and invest the difference.
We strongly believe that there is no one policy that will fit every individual. As you may know, we're all different; we all have different incomes, needs, family sizes and health histories to ponder on when acquiring a life insurance policy.
As the name suggests, level term life insurance provides coverage for a certain amount of time frame and pays a benefit only if you die during a particular period. Your beneficiaries can be anyone from your family or someone close to you. For instance, if you die during your term life insurance period, your kids will receive a set payment, also known as the death benefit described in the policy you signed.
How much life insurance do i need? Usually, term periods generally range from 5 to 30 years, with 20 years as the most popular term so it depends on your specific needs.
Term life insurance is also known as “pure life insurance” as they have no savings component or any additional benefits. In short, a term life policy only provides a guaranteed death benefit for a given period of time.
However, when the term is over, you have at least four choices:
- Drop your policy – If you bought your policy 20 years ago, you kids are married, and your house is paid off, and you put aside enough money to support your family then you should rejoice the fact that you no longer need are you're still alive.
- Extend your coverage– most term life policies don't really expire at the end of the term. Most of them expire when the insured person reaches 95 years old. You may continue with the same policy without proving insurability that will be considerably more costly, and the rate will increase too as you age. Most people do not opt for that choice- if they're healthy and need a policy, they just get a new term or a final expense policy.
- Convert your policy– Converting life insurance policies is it possible. You may convert your policy into a universal life or a whole life policy, though this will highly depend on your insurer and if they are offering that product when your term expires.
- Buy a new term policy-For some of us, it may be the best choice. If you're under the age of 60, relatively healthy and don't want to pay for a whole life policy, then buying a new term policy will be the best choice for you.
What is whole life insurance?
As the name implies, whole life insurance is the purest form of permanent life insurance, and it's named so because it grants coverage that lasts your whole life as long as you return your premiums.
Unlike a term life policy, whole life insurance isn't “pure life insurance” product since it doesn't contain a cash value component. The policy comes with cash value when a share of your premium dollars are funded, and this sum grows overtime on a tax-delayed basis, so you don't pay taxes on the gains.
This cash value comes with a series of benefits that you can use while still alive. Although it takes several years to grow into an actual useful amount, once that happens, you can borrow money against your insurance's cash value in the form of withdrawals or loans.
Advantages of Term Life Insurance
- One of the many advantages of level term life insurance is its lower initial cost when compared to whole life insurance. It's cheaper, and you can only pay for the death benefit, the payment your family will obtain if you pass away during the term.
- Term life insurance is usually the best choice for people who are building a family, especially if they're struggling with a tight budget since it allows them to buy higher levels of coverage.
- Level term policy is the simplest form of life insurance to understand. We all need and value something that is simple to grasp. For example, if you bought a 30-year policy, when you were 30 years old, you should know it will expire at the age of 60.
Advantages of Whole Life Insurance
- A whole life insurance policy lasts the entirety of your life. The good news is that you don't have to worry about the policy ending and the premium you paid for it disappearing.
- The whole life insurance policy insurance can include a whole cash value component, allowing you to apply a share of your premium toward an account that collects interest over time and from which you can borrow against when necessary.
- Death benefits known as the set of money your whole life insurance policy pays out your family at the time of your death. You can choose how much you want your death benefit to pay, however, the higher you custom this benefit, the more your policy will cost.
