Term Vs. Whole Life Insurance: Which One Do You Choose?
You need a life insurance policy. You know you need one because you’ve heard it from your family, online advertisements and commercial breaks during Sixty Minutes. And although you are a responsible person, you may be hesitating because you don’t know much about life insurance at all.
Choosing the right life insurance is often confusing. Everyone has an opinion on what would be best for your situation. Your parents praise their whole life policies and your in-laws swear by their term life coverage. Add in your friends’ and co-workers’ opinions, and your head is in a swivel. Remember, the right policy for you depends on your goals. Are you simply looking for protection for your loved ones when you die or do you want your insurance to be a lifelong investment? A little thought and research can clarify your options.
Term life is a more flexible life insurance option. It costs less because it covers you for a specific period or term and then ends. For instance, you may choose a 20-year term policy. If you die within that term, the insurance will pay your death benefit to your beneficiary or beneficiaries. Most people choose the term length so that at the end of it, they don’t need more life insurance.
Terms usually range from 5, 10, 15, 20, 25 and 30 years. During the term of your policy, your rates are locked in. Some people who want coverage for a very short period choose annual renewal term life insurance that gives you the option of buying coverage for a set period, but the cost may go up each year. The best bargain in life insurance is generally standard term life.
Whole Life Insurance
Whole Life Insurance is a type of permanent insurance, so named because the policies are meant to be lifelong, although you can “cash out” of them in certain instances. They are much more expensive, often ten times as much or more per year, than term life policies because the insurance company knows that it will probably have to pay out on a whole life policy while many people outlive their term insurance. Also, whole life policies give you “tax-privileged savings” that you can use in the future. For many, this financial feature is the main attraction in a whole life policy, although investing in a 401k or IRA should be a priority before investing in a whole life policy.
After a few years, you can get cash from your whole life policy, although it will affect your coverage once you do. Once you build up the value of your policy, you can also take the surrender amount, which means you get the money but no longer have life insurance coverage. However, you may like the idea of having an emergency source of cash.
Meeting Your Needs
You have to consider a number of factors when deciding which policy is best for you. For many, the price of a whole life policy doesn’t fit into their budget. If you need to keep monthly costs low, then a term life policy is the best choice for you. If you like the features of a whole life policy but cannot afford it, don’t despair. Many term life policies let you convert to permanent coverage within a stated time period.
You may only need the coverage for a certain period of time. Some parents want the policy only for their child-rearing years. Others choose a policy that lasts the length of their mortgage.
You might choose whole life to protect your heirs’ inheritance. Sometimes estate taxes can force people to sell their inherited property or heirlooms. A whole life policy can often pay much or all of this estate tax that kicks in at $5.40 million per individual and $10.98 million per couple.
If you have a child who will need lifelong care, a whole life policy can ensure that dependent is properly taken care of after you die. However, you will need to set up a trust through your financial advisor.
Fortunately, some insurance companies allow you to compare a number of life insurance policies so that you can find the coverage that suits your situation. You simply fill out a form with some basic information, and the site gives you various coverage options. You can then make your choice based on your particular needs in the privacy of your own home. Since you won’t be rushed or pressured by an agent, you can take your time choosing the best option for you. If you need help, they have live policy experts available to answer your questions.
Choosing a life insurance policy is serious business. You need all the facts to make the right choice for your life circumstances. Your financial situation, your investment needs, your parental status and many other factors need to be weighed before you settle on term life or whole life. One thing is certain – you need a life insurance policy to protect your heirs in case of your death. So don’t wait. Begin searching for your policy now.