Are you considering getting insurance? You may have already narrowed your choices between term and whole life insurance. Both have similar advantages for those who want to take a cautious approach with their money. Those who are considering getting either one want to have access to an emergency fund and provide enough money for their loved ones in the event that they die for whatever reason.
Why Get Term Insurance?
The main difference between the two is that this type of investment insurance has a set number of years while its counterpart lasts for the whole life of the policyholder. Term insurance has coverage of around 10, 20, 30, or more years depending on the policy you get and what the company offers. Most policies under this category are purely “life insurance.” In case of death of the holder, their dependents get the benefits the person signed up for.
With a term policy, you pay a premium that remains constant throughout its validity. This is an ideal option for those who take a conservative path to provide for their families. When you choose a policy, look for one that coincides with the years you’ll be providing for your dependents. In the event of your sudden death, the benefits given to your dependents will be able to replace the income you provide for them.
The ideal scenario for choosing term insurance is you’ll no longer need it once the validity ends. Your kids are done with college, no more house payments, and you have more than enough money to live comfortably.
Why Get Whole Life Insurance?
This type of policy provides holders with lifelong coverage and also comes with “cash value.” This number grows over time without incurring taxes. If you go this route, you have the option to borrow money or surrender the policy to get cash. If you are unable to pay the interest and the amount you borrowed, you’ll lose some of the benefits. On the other hand, you’ll lose coverage when you surrender the whole thing.
This type of policy has a constant premium as long as the policyholder lives, has a guaranteed death benefit, and a cash value that grows through the years. Some policies also come with annual dividends; holders can use the money to reduce premium payments, accrue interest or get cash outright. You can also get additional benefits or pay back loans you took.
Whole life insurance policies come out as more expensive compared to term insurance. However, the former has a cash value that increases over time while the latter is only temporary and the dependents of its holder won’t get a payout because they will live until its end.
Choosing between the two will depend on your needs and current financial status. Term insurance is affordable and provides a payout in the event of its holder’s sudden death. Whole life insurance is an option for those who have a lifelong dependent, money to pay for certain types of taxes, and for those who want money to spend for retirement and still have enough to leave an inheritance.