Are you confused between the term insurance and whole life insurance?
In case you are not around to take care of your family members, a life insurance policy can be just the support you need. If you die, your family will have to pay for your funeral, mortgage, outstanding college fee, etc. But how will they pay for all this if they are short on funds? This is where life insurance can be a game-changer.
Life insurance is divided into two main categories: whole life insurance and term life insurance. Term life insurance is easy to get and involves low prices. Whole life insurance is far more costly, but it has added benefits. Let’s discuss in detail each type of life insurance.
Term Life Insurance
As the name suggests, the coverage provided by a term life insurance is limited to a specific period. It is also known as pure life insurance. The reason for calling it pure life insurance is that it takes care of your family members if you die a premature death. If you have a term insurance policy and you die within the policy period, payment will be made to your dependents. Besides the immediate financial protection of your family members, there is no other potential benefit of a term life insurance.
In case of a term insurance policy, you get to choose the policy term when you purchase the policy. The most common insurance terms are 10, 20, and 30 years. In most cases, the death benefit, as well as the premium and cost, tend to remain the same throughout the term.
Here are a few things to consider when shopping for a term life insurance.
- If you need life insurance to protect your family, the insurance term should coincide with your bill-paying years.
- Go for an amount that will be sufficient for your family in case you are gone. The insurance amount will serve as a substitute for your income and will allow your family members to bear everyday expenses such as utility, health, and childcare.
In the perfect scenario, your family’s needs should be fulfilled by the time the term expires. By the time your kids will be self-reliant, and you will have paid the significant charges with enough savings on the back end.
Whole Life Insurance
Just like any other life insurance policy, the whole life insurance policy provides lifelong coverage. It also includes an investment component known as the cash value. The cash value tends to grow very slowly. It is tax-deferred, which means you are not supposed to pay tax on the gains, during accumulation.
In a whole life policy, you can either surrender the policy for cash or borrow some money against the account. However, if you don’t pay interest on policy loans, there will be a reduction in your death benefit. In case you surrender the policy, you will be left with no coverage, whatsoever.
Despite some complications, whole life insurance is far more straightforward than any other insurance policy for the following reasons.
- As long as you live, the premium will remain constant.
- The cash value account continues to grow steadily.
- Guarantee of the death benefit.
We assume that by now, you can distinguish between term life insurance and whole life insurance. However, before going for either of the two policies, have a word with an experienced financial advisor.
