In life, it never hurts to be prepared. It's why life insurance exists, and why millions of Americans purchase these policies every year. However, with the variety of insurance products on the market, it might be difficult to pinpoint which one is best for your needs.
One of the most common dilemmas when it comes to life insurance is whether to purchase a term or whole life insurance policy. We will examine these insurance types to help you understand the difference between term and whole life insurance — and when each policy type might make sense.
Many people opt for term life insurance because it's generally less expensive than whole life insurance. Why? Because this type of insurance provides coverage for a specified period, usually a 10-, 15-, 20- or 30-year term length. Term life insurance provides a death benefit, meaning your beneficiary will receive a payout in the event of your death — should it occur while the policy is in force. Most term products, however, offer optional riders and options that could allow you to renew or convert your policy.
These policies may be more expensive as you get older, and you may not get back any of the premiums you've paid when the policy expires. Some term policies offer the option to extend the policy term. However, you have to make this request within a certain time frame, which is usually specified in your insurance policy.
One of the biggest benefits of term life insurance is its flexibility and affordability, especially if your need for coverage is not permanent. Most of these policies could be converted to whole life insurance, and you may be able to find policies with very affordable monthly premiums, depending on your age and health.
Unlike term life, whole life insurance covers you for your entire life and provides a death benefit and a cash value accumulation, as long as you maintain the policy. You could take out a loan against the cash value of a whole life policy, but it's important to note that unrepaid loans will reduce the death benefit.
Because of the death benefit, cash value accumulation and lifelong coverage whole life insurance offers, premiums for these policies are typically higher than those for the same amount of term life insurance. However, the benefits offered by whole life insurance could do a lot to improve a family's financial security. Aside from the death benefit, taking out a loan against the cash value of the policy could make all the difference if you become temporarily disabled and are unable to work, if you have a financial emergency — or if there is a big life expense (like college tuition) that you may need to cover.
Once you understand the difference between term and whole life insurance, consider taking a moment to think about your life stage, lifestyle, needs and goals. People consider different policies for different reasons. Before you decide on an insurance policy, you might want to think about several things, including:
Life insurance could be an important purchase for you at any life stage. If you don't have life insurance — or don't have enough coverage — cost doesn't necessarily have to be a barrier to getting this financial protection. There are many life insurance plans available.
Consider speaking with a financial representative about your needs, as they could help you decide on the right policy. Comparing plans, researching your options and speaking to a financial representative could help you find a policy that best meets your family's financial needs today — and tomorrow.