Most people have heard of life insurance, and many of those have heard the terms whole life and term life insurance. When choosing life insurance, you must know what you need before you speak with an insurance agent. Most agents, while keeping your best interest in mind, will are at their core salespeople. For this reason, you need to understand life insurance and know what you need, so you don’t buy needless insurance that doesn’t work for you.
Here is an overview of both term life and whole life insurance and the comparison of what each of them offers so you can make an educated decision on what you need before you meet with an agent.
Differences Between Whole Life and Term Life
When deciding which type of insurance to purchase, you should base your decision on your financial goals and your needs along with those of your beneficiaries. Life insurance isn’t just something that will cover your loved ones after your death. It also has some financial advantages you can utilize while you are alive. Here are the features of both insurance types.
Features of Term Life Insurance
- Only provides death benefits
- Only pays if you die while the term of the policy is in effect
- Most affordable life insurance to buy
- Purchased for a specific period or terms such as 5, 10, 15, or 30 years
- Is more expensive as you age
- Once your term ends, you must renew a new term
- Used as additional coverage with a whole life insurance policy
- Can be converted to whole life insurance
Features of Whole Life Insurance
- Covers you for life
- Provides death benefits
- Cash value that builds an accumulation for the lifetime of the policy
- Sometimes requires a health examination
- Can sometimes be purchased without a health examination
- Takes several years to build value
- Cash value is based on the rate of the return value
- During the life of the policy, it can be borrowed against
- Is initially more expensive, but premiums reduce over the years
Reasons to Convert Your Term Life Policy
- You are over fifty, and your term life insurance is about to expire
- You still need life insurance, but due to age or other circumstances, term life is too expensive
- Estate taxes are a concern, or you are hoping to set up your estate and need whole life
- You are establishing or changing your will to include a trust
- You need a non-taxable investment option
Should Carry Both Whole Life and Term Life Insurance?
In most cases, you will want to choose one insurance over the other, but there is an argument for having both at the same time. This is especially beneficial since term life policies have an endpoint, while whole life insurance covers your lifespan.
The Benefits of Having Both Whole and Term Life Insurance
- You need more coverage but can’t afford to add to your whole life policy
- You need more coverage only for a period and not whole life
- You have term life and can’t afford to convert to whole life completely
You should know about term life and whole life insurance that no matter which one you choose, it is essential that you have life insurance. This insurance, while beneficial to you while you are alive such as with financial benefits you can take before death, but the main reason you take out life insurance is to benefit your loved ones after your death.
Many times life insurance covers funeral and debt expenses and gives your beneficiaries income to cover after death expenses and also takes care of them for life. To choose the right kind of life insurance, you must consider the benefits of both and choose the best one you can afford that will cover what you need.