Have you considered how much life insurance you need?
Life insurance is there to provide income for your family when you die, which is why it’s important to know and understand the different life insurance options available to you. The two most common, and debated, forms of life insurance are term life insurance and whole life insurance. Be sure you understand the ins and outs of both kinds of life insurance policies and get multiple life insurance quotes before making your purchase.
Comparing Term vs Whole Life Insurance
Term Life Insurance
Term life insurance is a policy with a specific end date. As long as you pay the monthly premium, your policy will remain in effect until you reach the policy end date. Common terms include 10, 15, 20, and 30 year life insurance policies. When the end of the term is reached, you may or may not have the ability to renew, depending on the company, your health, and other factors. If you are able to renew your insurance policy, the premium will typically be higher because the policy will extend through an older age.
Pros and Cons of Term Life:
- Lower premiums. Term life insurance is usually the least expensive policy.
- Full payout. Another advantage is that the beneficiary will receive the full amount of the policy if you die within the term.
- Term limit for policy. Term life insurance policies are just that – for a set duration of time, often ranging from 5-30 years. The positive aspect of the term limits is knowing how much your policy rates cost. The downside is that you may not be able to renew, and that even if you do renew once the term is up, the cost will most likely increase.
- No cash value. Another downside is that, unlike whole life insurance, you won’t build up cash that you can borrow against down the road.
Whole Life Insurance
Unlike term life insurance, which has a specific expiration date, whole life insurance is guaranteed for the life of the insured person. Also known as permanent, or cash value insurance, whole life insurance premiums will never increase because you age.
Pros and Cons of Whole Life:
- Stable premiums. One of the biggest pros to whole life insurance is that you’ll never see an increase in your premium. What you pay today is what you’ll pay 20 or 30 years from now. And as long as you continue to pay your premiums, your beneficiary will receive the benefits upon your death.
- Cash value. Whole life insurance also has a cash value. You gain interest as the cash value increases. Interest growth is tax deferred, meaning you don’t pay taxes on the income while it remains in your policy. If you cash out your whole life policy you will pay taxes for any cash amount above what you put in.
- Higher premiums. One downside to whole life insurance is the premium is usually higher than that of term life insurance, and that can stop a lot of people from getting life insurance.
What about life insurance as an investment? Some people claim whole life insurance is a better option than term life insurance because it has cash value and can serve as an “investment.” In most cases, whole life insurance is not a good investment, despite what some people may tell you. Here is an article that asks, should you buy whole life insurance?
Life insurance can protect your loved ones
Life insurance can help protect your family in the even of your untimely death. When considering how much life insurance to buy, consider the costs of any debt you may have, including a mortgage, consumer debt, medical bills, etc. Then factor in additional living expenses for your spouse and family.
Contact an insurance agent or financial professional for life insurance advice or to learn more about term life insurance versus whole life insurance, and more specifically, which one is best for you and the needs of your family. Be sure to shop around for insurance policy quotes before making a purchase; life insurance rates may vary widely from company to company.