In the event something were to happen to you, you want to make sure your family and their needs are taken care of, right? Seems simple enough, but deciding how to go about it can be a bit more complicated. As you are comparing offers, you will likely be deciding between two of the most common types of life insurance: term life insurance and whole life insurance.
Term life insurance tends to be more straightforward and, oftentimes, less expensive. Whole life insurance, on the other hand, tends to cost more than term life insurance but can offer additional benefits. It’s beneficial to consider both options to discover which might be the best for you and your situation.
Benefits of Term Life Insurance
Simply put, term life insurance is typically your go-to when it comes to life insurance coverage. If damage occurs to your home, you receive a payout equal to the cost to restore your home. And in the event of complete loss, the policyholder receives the face amount of the policy.
With term life insurance, if you were to pass away, your beneficiaries would receive the face amount of the policy. One important difference here between term life insurance and whole life insurance will be the term (or length) of time the policy is in effect.
Term life insurance is often sold in 10, 15, 20, 25 and 30 year term lengths. You can decide what length would be best for you and your family, but it’s important to note that the younger and healthier you are at the time of purchase, the more affordable your policy could be. Therefore, it might be more beneficial to purchase a longer term length at a younger age to reap the benefits of a less expensive premium for longer.
When the time period elapses—or the term expires—so does the coverage.
So, why choose term life insurance?
Many people choose to purchase term life insurance because it doesn’t pretend to be anything else. It’s simply insurance in its most essential and affordable form, and with term, you aren’t paying for things you don’t want or need.
As a result, term life insurance often costs less than whole life insurance—as much as 10 times less. For people with uncomplicated financial situations, term life insurance could be the right option.
It is important, however, to consider the following when deciding if a term life insurance policy is right for you:
- What happens if you die unexpectedly?
- Will the policy coverage be able to provide for your family, replacing your income and covering day-to-day expenses?
- Also think through other expenses, such as child care, that could become the new norm for your family.
It will be important to select a term and amount required to cover major expenses and bills. Consider setting a term that expires once you’ve achieved some major financial life events, such as paying off your mortgage or ushering your adult kids onto their own path of financial independence.
Whole life insurance, on the other hand, falls under the category of permanent life insurance, providing a set amount of coverage as long as you live. Think of whole life insurance as a combination of term life insurance and a mandatory savings program known as the policy’s cash value. Whole life insurance cash value behaves like a retirement fund, taking a long-term, risk-measured view to growth. In the event of your passing, the value of the policy is paid out to the beneficiaries.
Benefits of Whole Life Insurance
While term life insurance tends to be the more affordable life insurance option, whole life insurance can have its benefits, too, providing both stability and flexibility. The money in a cash value account grows at a guaranteed rate and you can borrow money from the account or give up the policy for the account value. These options should only be considered in the case of an emergency, but many people like the clarity of knowing they have this additional account if ever needed.
Another benefit of whole life insurance over term could be if you have a dependent with special needs or who would, otherwise, require lifelong care. In this instance, whole life insurance can help fund trusts designed to fund those needs.
Find Out What Life Insurance Is Right For You
The primary intent of life insurance is to cover costs after you’re gone, but determining what those costs could be is critical to figuring out whether term life insurance or whole life insurance is right for you and your loved ones.
That’s where SelectQuote comes in.
We’re able to compare rates and coverage from some of the most trusted carriers in just minutes, providing you with the right policy at the right rate at the right time.