Are you planning to buy life insurance? Can’t decide between term life insurance and whole life insurance? Some people suggest you buy term life insurance. Some suggest you buy whole life insurance.
Well, it’s not just you. Most people find it confusing too. To purchase the right life insurance, you need to understand the basics, benefits, and shortcomings of each type of life insurance. Then, you can decide for yourself what’s better for you.
Our article shares some pros and cons of term life insurance and whole life insurance. I hope, it will help you to make the right decision.
What is Term Life Insurance?
Term life insurance is a type of life insurance that guarantees to provide coverage for a specific period at a fixed rate of payments. It is also known as term assurance or pure life insurance.
Once the term ends, you can renew it for another time, or if you wish, you can convert it to permanent coverage or terminate it for good.
How Term Life Insurance Works
The term life insurance policy is simple. If the policyholder dies within the term, your beneficiaries will get the payment. Other than the assured death benefits, it has no additional value. It is used for pure income replacement.
The typical length of the term life insurance is 10, 15, 20, or 30 years. In many cases, death benefits are tax-free.
What Is Whole Life Insurance?
The whole life insurance is a type of permanent life insurance that remains in force for the entire lifetime of the policyholder. Apart from providing a death benefit, it also includes an investment component known as cash value. You don’t have to pay taxes for the cash value.
How Whole Life Insurance Works
Whole life insurance is actually a type of permanent life insurance or traditional life insurance. It will remain in action as long as the premiums are paid. There are three main aspects of whole life insurance-
- Death benefits
- Cash value
Death benefits mean that your family or beneficiary is going to get the money when you die.
Cash value makes whole life insurance distinct from the other life insurance. Each month when you pay your premium, part of the money is going to an account to make sure that your beneficiary will get the money after your death, and part of it is going to your savings account and accumulate values. You can think of it as a long term saving.
Permanent means whole life insurance is going to be in force for the entire life.
Why You Should Take Term Life Insurance
- Term life insurance is more affordable than whole life insurance.
- You can choose the time of your coverage.
- The policy is much less complicated than whole life insurance.
- Term life insurance is flexible. You can extend it further or convert it to permanent life insurance.
Why You Should Take Whole Life Insurance
- Unlike term life insurance policy, whole life insurance has a cash value. You can purchase it as an investment.
- Purchasing whole life insurance is going to protect your wealth. As it has tax-saving factors, it is suitable for estate planning.
- As the cash value grows, you can borrow or withdraw it before your death.
- Your family or beneficiary can use the benefit to pay estate tax.
- You don’t have to worry about policy termination.
Life insurance helps you to secure the future for your family. Most young people think life insurance as something that should be done in older age. Young people need insurance as much as old people.
Choosing the right policy depends on many things. You have to consider your current health condition, your family’s medical history, your financial situation, your children’s age, your marital status, and many other subtle things.
Term life insurance is much cheaper than whole life insurance. It is easier to understand. On the other hand, whole life insurance has cash value and guaranteed investment return. But its premiums are expensive.