Knowing what kind of life insurance to get can be confusing, scary and threatening for most people. Especially now, in our current time of Covid 19, the Great Resignation and resulting loss of employer group benefits, the landscape for purchasing life insurance has become more pressing yet still as burdensome to many.
Understanding the basic kinds of insurance products available out there can reduce some of the anxiety many experience. So, how can you tell whether you should go with term life insurance or whole life insurance? Great question.
Term Life Insurance
Term life insurance is "temporary coverage" and generally has the lower monthly premiums of the two. You can get higher coverage for a lower monthly payment. This kind of insurance is valid only for a certain period of time "term", hence the name. You purchase term life insurance to cover you until the kids grow up, until retirement, to pay for a debt such as a house or loan or for another specified time range.
Typically if you don't make any claims against the policy, you won't receive any benefits from this type of insurance during the life of the policy which could be a 10, 15, 20 or 30 year term of coverage. Other types of insurance are like that, examples include home insurance and auto insurance.
Please Note: Many Term and Whole life policies now have optional or included Living Benefits which pay the insured person a percentage of the death benefit "while living" in case of disability or illness.
Whole Life Insurance
Whole life insurance on the other hand is viewed as a permanent coverage with a investment feature. A portion of the money you pay each month is invested into an interest bearing account or investment vehicle which increases in value over the life of the individual who purchases this type of insurance.
If you were to cancel a whole life insurance policy, the insurance company would return to you the value of the investment that has accrued "cash value" since you began the policy minus any fees. Given enough time and depending on the company, rates, and type of whole life the interest on this kind of policy can even grow large enough to cover the monthly premium that is due thereby potentially giving you insurance without a monthly cost.
How can you tell which type is right for you?
Know some of the basic advantages of each before deciding.
Term Life Summary:
Lower Cost: Term life insurance generally results in lower monthly premiums with higher amount of coverage.
Exam free options: Many term policies can be purchased with or without a health exam.
Cover Debt: Term is often used to cover the burden of a mortgage or loan.
Simple and To The Point: Term coverage can be an easy purchase as long as you know how much coverage you want, how long you want it to last, which company you want to purchase from and do you desire living benefits as a part of your coverage.
Whole Life Summary:
Its Permanent: One of the major benefits of whole life is its permanency. Pay your premiums and the coverage is there forever. Pretty simple.
Your payment amount although higher than term, will not change. Once approved your coverage and payments remain the same unless you make changes to the policy or in cases of dividends (interest credited to your policy) your coverage only improves.
Cash Value: Whole life insurance builds cash value within the policy that never goes down. This can make it appealing for retirement.
Keep in mind that planning often includes a mixture of both insurance types to cover the goals and dynamics of your life.
While knowing these differences helps, I would suggest you find yourself an insurance agent such as those we have at Remedy Insurance & Retirement Agency. Its important that you feel comfortable and discuss which insurance plan is right for you. We are an Independent Insurance Agency contracted with several companies to give you options and peace of mind.
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