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Life insurance is an important way to protect your family after your death. Life insurance allows you to purchase a policy while alive, which your loved ones will receive after your passing. There are different types of life insurance, but term life and whole life policies are the most popular. Let’s compare them below.
A whole life policy is a permanent policy. This means that the policy is guaranteed for your entire lifetime as long as you pay your premiums. No matter when you pass away, your beneficiaries are guaranteed to receive the death benefit.
Whole life policies are generally more expensive. The policies themselves have a death benefit of at least $50,000 up into the millions. The monthly cost of the policy is, therefore, higher. The monthly premium also depends on your age, gender, and health. Younger and healthier people are more likely to have cheaper monthly premiums and to be accepted by the plan.
This type of policy also allows you to make investments. When you pay your premium, the insurance company adds into a special bank account that accrues interest. The amount increases as you pay your premium, and the interest accrues. This amount is called the cash value. The cash value is tax-deferred, meaning you don’t have to pay taxes on it. You can borrow against your cash value or surrender it, meaning you cash out the value.
Another source of revenue that the whole life policy provides includes dividends. You may receive them annually in cash, let them accumulate to accrue interest, or put them towards your policy’s premiums.
Term life only applies during a certain term but is more affordable. A term life policy means paying for life insurance for a specific term. It’s only valid if you die during the predetermined term. The most common terms include 10, 15, 20, and 30 years. For example, if you buy a policy valued at $100,000 for a 20-year term, your family will only get the $100,000 if you pass away in those 20 years.
A term life policy does not have cash value and therefore does not allow you to invest.
In sum, a whole life policy is permanent, has a higher death benefit, and allows you to invest but is more expensive. A term life policy will only pay if you die within the predetermined term, has a lower death benefit, and does not allow you to invest but is more affordable. Deciding on a life insurance type depends on your priorities. Give us a call today so we can help you choose the right path for you!
We are committed to helping you realize your health and financial goals by making you aware of all your options so that you can make the best choice for yourself and your family.
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