Understanding what kind of financial security you'd like in place throughout your lifetime is significant. With that understanding, you'll have an easier time choosing between term life and whole life insurance. In this article, we'll go through the key differences between whole life and term life insurance, determine which may be better for you, and alternatives to term and whole life.
Term Life Insurance
Term life insurance provides coverage for a set term, meaning a specific amount of time. Term life will usually vary between 10 and 30 years long. If you, the policyholder, pass away during that term, your beneficiary, or beneficiaries, will receive the payout. If you outlive the policy term and your coverage ends, your beneficiaries don't receive the money. With most policies, the death benefit and your insurance premiums stay the same throughout the term.
A good use case for term life would be for new parents. For example, you may decide to buy a 20-rear policy to cover your financial responsibilities to your child until they turn 20.
Although term policies are sufficient for most people, the lifelong coverage and investment solutions of permanent insurance such as whole life insurance may be worth considering.
Whole Life Insurance
Whole life insurance provides permanent death benefit coverage for the insured's life. Whole life guarantees a death benefit payment to your selected beneficiaries. The main difference between term life and whole life is that term life will provide coverage only for the specified number of years listed on the policy while whole life lasts for the policyholder's lifetime.
The main difference between term life and whole life is that term life will provide coverage only for the specified number of years listed on the policy while whole life lasts for the policyholder's lifetime.
According to the Insurance Information Institute, whole life insurance is the most popular or common type of "permanent" insurance purchased. In addition, whole life has a savings account component that you can use in case of an emergency, or you may be able to take out a loan against the policy. A portion of your premium payment goes towards what's known as the "cash value." Over some time, your policy's cash value will increase, and you may also have the option to withdraw funds or borrow against it.