Term vs Whole Life Insurance
What is Term Life insurance?
Term life insurance is actually fairly straightforward. Put simply, term life insurance offers a policy for a set number of years. This type of policy, however, only pays out if you die while the policy is still in effect. In most cases, this route is best utilized for an amount of time that correlates with individual needs. As in, if you have a baby, a 20 year term life insurance policy will cover the child in the event of anything happening while you’re still responsible. If you outlive the terms laid out in the policy, beneficiaries receive nothing. Others also buy it as a kind of "mortgage insurance", or means of paying off a large debt. For example, if you have a 30-year mortgage for a $500,000 loan, you might take our a 30-year $500,000 term policy to pay off the mortgage so your spouse isn't strapped with the loan while struggling to put their lives back in order.
Types of Term Life Insurance:
Annual Renewable Term: Although you will choose a period of time that being insured is guaranteed, though the premiums to tend to go up every year.
Decreasing Term: While this type costs the same through the term, the amount paid out if you die gradually decreases over time.
‘Return of Premium’ Term: If you outlive this type of policy, you’ll be reimbursed the amount you’ve put toward it.
Term Life Insurance Pros and Cons
Pros:
- You get to choose the length of the policy
- Lower premium
- Many can be converted to whole life insurance coverage
Cons:
- Accumulates no cash value
- Does not provide lifelong coverage
- Less secure than whole life insurance
Many people buy term life insurance solely to cover their income in the case they leave loved ones behind. This includes covering debt, young children, and mortgages/any other living expenses left unpaid. Term life insurance has options ranging from 5 to 30+ years, so there are many ways to curate a policy to your individual needs.
What is Whole Life Insurance?
Whole life insurance lasts your whole life. While this type is generally a bit pricier, it also offers substantially more peace of mind. No matter when you die, your loved ones will receive the benefits set up in the policy.
Whole Life Insurance Pros and Cons
Pros:
- Provides cash value
- Lifelong coverage
- Builds guaranteed cash value
Cons:
- More costly
- Locked in to policy
- Don’t get to choose length of time
One of the main draws of a whole life policy for many people is not only the peace of mind it brings, but the ability to borrow against it in times of need. While this is not recommended, it is a fallback option many like to have, just in case.
While term and whole life insurance have both pros and cons, they’re very different. One isn’t necessarily better than the other, be sure to consider what makes the most sense for you and your family.
Which is Right for You?
When it comes down to it, the choice ultimately depends on each individual. With that in mind, please reach out today with any questions, or to get a quote!
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