Term and whole life insurance are two types of plans that can meet your life insurance needs in different ways. If you’re comparing your options, you may be wondering which type of policy is right for you. Let’s take a deeper look at term and whole life insurance to understand the benefits of each coverage type.
What are the differences between term and whole life insurance?
Here are some differences between term and whole life insurance policies:
Term life insurance guarantees coverage over a preset period of time, usually between 10 and 30 years. Premium payments for term life insurance are typically more affordable than those for whole life insurance.
If you die while the policy is in force, your beneficiaries will receive the death benefit. Once the term has expired, you do not gain back the money you’ve paid towards your premiums.
Whole life insurance lasts the entirety of a policyholder’s life. While premium payments can be much higher than term life insurance payments, whole life premiums also go partly towards building a cash value for your policy which can then grow with interest. Once you build up enough cash value, you may have the option to borrow against it, withdraw money from the account, or use it to pay premiums.
How to choose the right life insurance policy
Here’s how you can decide on the right type of life insurance for you and your loved ones:
Consider how long you need coverage for
The length of time you wish to cover with your life insurance policy will play a strong role in determining what kind of coverage you purchase.
For example, individuals looking for a life insurance plan that will protect their family until the policyholder reaches retirement age should opt for a term life insurance policy. However, customers who want lifelong coverage should consider a plan that can stay with them permanently, like whole life insurance.
Figure out how life insurance fits into your budget
Another big factor in picking between term and whole life insurance is the premium payments. Any potential life insurance customer not looking to pay high premiums should aim to find a term insurance plan that works for them, and they should try to lock in payments for this coverage while they’re younger and healthier.
For customers who are willing to pay more in premiums for longer coverage, whole life insurance may fit their financial plan and help them build wealth in the process. This can be a great option for individuals who have maxed out their contributions to retirement accounts and are looking for another way to save money while making interest.
Review your life insurance needs
You should also think about your life insurance needs when deciding whether you need term or whole life insurance. Consider your beneficiaries and how the plan you choose will best meet those needs. How will your beneficiaries use your life insurance payout should you pass away? Will they be able to provide for themselves, or will they need extensive financial backing?
The answer to these kinds of questions will help you understand how life insurance can address those needs. Once you figure that out, you can better understand whether a whole life or term life insurance plan may be right for you.
Make the right decision for your loved ones
Choosing between term and whole life insurance will affect your premium payments and the nature of your policy, so make sure to know the difference between the two before you purchase a plan. Once you’ve done your research, you can start to build the right foundation for your life insurance goals. This can provide you with peace of mind and give your family added financial security for years to come.