You’ll likely see a bunch of unfamiliar terms when researching life insurance. Two of the most common are “term” and “whole life” insurance. It’s crucial that you understand the differences between term and whole life insurance to ensure you get the policy that’s right for you and your family. This post will cover the basics you need to know about the two options.
Term life insurance
Term life insurance is essentially a stripped-down insurance policy that’s only good for a certain timeframe. The term can be anywhere from 10 to 30 years, and the policy will only pay out if you pass away during that period. These are the pros and cons of term life insurance:
- Pros: If you need to get life insurance on the cheap, term is the way to go. It’s the most affordable option and the easiest to understand. Folks will typically buy enough insurance to last until their children reach adulthood.
- Cons: While the premiums are lower for term life insurance, they require a medical exam prior to signing up. If you’re in poor health or are on the older side, you’ll need to pay more each month than a healthy individual.
Whole life insurance
Also known as permanent life insurance, whole life insurance provides long-term coverage and pays out regardless of when you pass. One of the biggest differences between term and whole life insurance is that whole life insurance has a component called a cash-value account that grows over time. Once there’s enough in the cash value account, you can borrow against the account or surrender the policy for cash.
Consider these benefits and drawbacks of purchasing whole life insurance:
- Pros: Being able to borrow against your whole life insurance policy is the biggest benefit when it comes to permanent life insurance vs. term. Another bonus is that whole life insurance premiums are locked in for life, so you’ll never have to worry about paying more as you grow older or get sick.
- Cons: The main con of whole life insurance is that it costs quite a bit more. These policies are up to 15 times more expensive than a term life insurance policy. Additionally, you may have to pay fees if you decide to cancel your whole life insurance policy.
How to choose between the two
You need to put a lot of thought into picking permanent life insurance vs. term. The first thing to consider is how long you need coverage. For example, if you’re a new parent and want to ensure your kids are financially secure until they’re adults, consider getting a 20-year term life insurance policy.
Additionally, think about how much your monthly premium will be. There’s no point in paying a small fortune each month for life insurance. We recommend shopping around and only buying what you can afford.
Talk to Safe Path Financial today
Now that you know a few of the differences between term and whole life insurance, it’s time to pick a plan. Call our professionals at Safe Path Financial to learn more about your insurance options.