Comparing whole life vs. term life insuranceSeptember 18, 2014
Of all the financial decisions you’ll make, life insurance is potentially the most complicated. You need to determine how much you’ll need, what you can afford, who you’ll seek a policy through – and most importantly, the type of life insurance policy you’ll get.
More often than not, that decision comes down to whole life insurance vs. term life insurance.
Term life insurance policies and whole life insurance policies are quite different, featuring unique terms, average costs and benefits. The goal of this guide is to provide you enough background on the benefits of each to help you begin making the decision of what type of life insurance is right for you and your family.
Benefits of term life insurance
According to the National Association of Insurance Commissioners (NAIC), 48 percent of young families have purchased life insurance for either spouse, let alone both.
Term life insurance is an affordable life insurance option that’s built to provide a death benefit for young families for a set period of time. Term life insurance policies are written for 10, 20, 30 or another set number of years. If the policyholder dies during this time period, and meets the conditions set forth in the policy, the beneficiaries are granted the cash value of the policy.
After a policy’s term lapses, there is no longer any benefit. That said, policies can be renewed, more likely than not at a much higher premium than policyholders were initially insured for.
Term life insurance policies are usually much easier to obtain that other types of life insurance, such as whole and universal policies. They usually require a medical interview and/or questionnaire, as well as basic physical, depending on the company and amount you’re being insured for.
Benefits of whole life insurance
Whole life insurance is built to provide total peace of mind. Not only does it provide guaranteed financial security for both short-term and long-term challenges, but it also provides a financial boon above and beyond a death benefit. Policyholders can build cash value over time that can be withdrawn and even borrowed against whenever they choose.
That said, whole life insurance requires a more rigorous evaluation process; expect a thorough physical exam, lengthy interview and a close analysis of your family health history. And because there is a guaranteed death benefit – the biggest difference between whole life and term life insurance – the premiums will be much steeper.
Choosing the life insurance policy that’s right for you
Selecting whole life insurance vs. term life insurance isn’t necessarily an either – or proposition. Some people choose to combine these policies so that they have a guaranteed death benefit in whole life insurance that’s temporarily supplemented by a term life insurance policy for a predetermined amount of time.
Life insurance is a very personal decision. Deciding which policy is right for you and your family isn’t just about providing for the future, but it’s also about selecting a policy that you can reasonably and consistently pay today. Just because the policy you can afford today may not provide the coverage you want tomorrow doesn’t mean you can’t add to and increase coverage as you gain the resources to do so.