Term vs. Whole Life Insurance: What’s the Difference?
What would happen to your spouse and kids (or anyone else who depends on your financially) if you were to pass on today?
It’s an unsettling question, but it’s one that must be answered by most adults. Far too many families are left in terrible financial situations after the breadwinners die.
You don’t need to have a lot of money in your savings account to safeguard the financial future of your dependents. You just need to purchase a life insurance policy.
But which life policy is ideal for you? Should you buy whole life insurance? Term life insurance perhaps?
In this article, we’re sharing the difference between term life and whole insurance. Read on so you have the information to make a smart choice.
Term Life Insurance
Term life insurance is the most straightforward (and potentially the cheapest) life insurance policy you can buy. Also known as pure life insurance, it provides coverage for a specific period of time, such as 10 years. If the insured (policyholder) dies within this period, the beneficiaries will receive the death benefits.
From this, you can easily see why this policy is known as term life insurance. It covers only a specific period of time (term).
What if the policyholder outlives their term life policy? The policy automatically expires, but some insurance companies offer the option to extend it or convert it to a permanent life insurance policy, such as whole life insurance.
Whole Life Insurance
Whole life insurance is what it sounds like: it covers the policyholder for their entire life. This also means you have to pay the premiums until your death.
Unlike term life insurance, whole life insurance has a “cash value” component. Part of the policyholder’s premiums are channeled into a savings account, which builds up over time. You may be able to withdraw these savings or take out a loan and use the policy as security.
Term Life vs Whole Life Insurance
Now that you understand the basic differences between whole life insurance and life term insurance, how do you choose the right one for your needs?
A lot depends on where you’re in life right now.
Term life insurance is appealing to young people who’re starting out in life, especially those starting families. This policy is cheaper, which means it’s more affordable to this population group.
Taking whole life insurance at a young age can be disadvantageous. The logic behind this is a young person has several years of life left, which means they’ll pay a lot more money in premiums.
On the other hand, whole life insurance might be attractive to middle-aged people who have developed their financial muscles. The policy is expensive, meaning you should be able to afford to make the monthly payments for the rest of your life.
Also, if you believe in infinite banking, whole life insurance is ideal for you. Wondering what is infinite banking? You’ll be glad you asked!
Buy Life Insurance Urgently
Life insurance is an important estate planning tool. If you have people who depend on you financially, you need to get insured urgently. There are different types of life insurance, but with this guide, you now know about term life and whole life insurance. Make your pick!
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