Finding the right life insurance policy for yourself and your family can be tricky. There are seemingly many kinds but they will all fall into one of two categories: whole life insurance vs. term life insurance. Both of them are good, but you can determine the best one for you by your specific needs for life insurance. You need to understand the difference before choosing.
Whole Life Insurance
Whole life insurance has a built-in cash value that increases over the years. You can withdraw this cash from the policy if you should ever need emergency cash. You are allowed to withdraw any amount that has accumulated over the years. The premiums stay the same over the life of the policy.
Term Life Insurance
When you buy term life insurance, you are only buying pure insurance. There are no extra frills and no cash value. The insurance is sold in “terms,” or periods of years. You can buy policies that will provide the same level of coverage for a variety of years – ranging from one year to 30 years. The coverage stays the same during the policy term. However, at the end of the term, you must renew the policy. Each time there is a renewal, the price increases based on your age.
The Difference in Coverage Amounts
Because term life insurance does not have cash value built into the policy, it is much cheaper than whole life. This will enable you to buy hundreds of thousands of dollars in coverage. And it would cost much less than it would if you bought the equivalent amount in a whole life policy. It could enable you to purchase up to about 15 times more in coverage. It is very inexpensive if you purchase the policy when you are young.
When it comes time to renew a term life policy, you need to remember that with each year of age, the cost is increased. This means that if you buy a 20-year term life policy at 30 years of age, it would be rather inexpensive, but 20 years later when it expires, the cost to renew would be considerable. For people over age 60, the cost is beyond most peoples’ budget. At renewal time, if you are older, it may be a good idea to switch to a whole life policy.
Whole Life with an Investment Portion
Many of the newer whole life insurance policies offer an investment portion option. This means that you may be able to choose which investments you want. With some types, this could be risky because your investments may suffer losses and your premiums could be affected. Most likely, if you have money to invest, you may do better if you keep your investments separate from your life insurance.
Which Is Better?
If you are young and in good health, term life is the better way to go. For amounts of life insurance above $50,000, you and any others on the policy most likely will be required to get a physical exam to prove good health.
If you do not make a lot of money and you think that at some point you may need to get emergency cash, a whole life insurance policy may be the better option. The cash value will take at least three years to even start building up some value. Be aware, though, that drawing out some of the cash value will decrease the face value of the policy if you should die, and drawing it all out will cancel the policy.
Whole life insurance vs. term life insurance: which do you think is better for you? Reply using the comments below.