There’s a good chance that your employer already offers you some type of life insurance as part of your company’s benefits package. But with that being said, there’s also a good chance that this life insurance wouldn’t be nearly enough to cover all of your assets and provide for your family in the event that something were to happen to you, which is why it’s recommended that you explore your options on purchasing another, separate policy. And when it comes to purchasing a life insurance policy, you’ve got two options: whole life or term.
In this post, we break down whole life and term Life Insurance so you can make the call on which type is best for you:
Fitting to the name, whole life insurance is a type of policy that lasts the duration of the policyholder’s life. It consists of an agreement between the policyholder and the insurance company, where the policyholder will either regularly pay a fixed or level premium for the rest of their lives and the insurer, in return, will pay a predetermined death benefit upon the policyholder’s death.
There are a few notable advantages to whole life policies. For instance, whole life insurance includes a savings component which accumulates a cash value, which also earns interest. Policyholders can actually even borrow against this cash value. But while there are benefits, there are also some notable drawbacks. For instance, these policies come with higher premiums, which can make them hard to afford. However, the policyholder will actually likely save money in the long run, as they’ll pay the same for their fixed level premium over time as inflation takes its toll on everything else.
Term life insurance is comparatively low cost compared to whole life insurance, and it is generally easier to understand as well. For instance, all you need to do is select a term (usually 10, 15, 20 or 30 years) and select a policy amount (i.e. $250,000). Then, if you were to die when the policy were in effect, your beneficiaries would receive the policy amount that you’re insured for, tax-free. A big advantage of term life insurance policies, aside from their simplicity compared to whole life, is that they’re often much more affordable.
However, one big disadvantage to term life insurance is that it’s crucial to select a proper term for your policy, as once it runs out, you’ll either be without life insurance or have to purchase a new policy. Say you purchased a 30-year term policy when you were 35 and it expires, meaning that you’re now 65. Should you purchase another life insurance policy, the payments are likely to be much more expensive due to your older age and greater “risk” of dying. Bottom line – if you’re going the term life insurance route, make sure you select a term that makes sense.
So which insurance premium is best for you? Term? Or Whole life? For more information, contact us today.