Let’s face it, if you are getting life insurance it is because either someone you love needs the funds to take care of themselves or their children in case something happens to you. But there are many options out there that can leave anyone confused about what they need and don’t need. If you die prematurely, you most probably don’t want your family to worry a lot about money and how they are going to stay afloat. In that light, you can buy term life insurance which can cover you for a couple of years. On the other hand, you might have a lot of money and want to invest so your cash-value account grows. In that case, a whole life insurance policy is the way to go. But some differences can greatly change what is best for you and your family. Let’s take a look at the differences between term life insurance and whole life insurance to see which one will work better for you.
Term life vs. whole life insurance: overview
To have a clear picture of the differences that set term life and whole life policies aside, there is a quick overview of how each one works.
What is the term life?
A term life insurance is essentially a policy that will give your family financial protection for a certain amount of time, in case you die prematurely. For example, you can get up to $500,000 in coverage for 20 years or up to $1 million in coverage for 30 years.
With term life packages, you plan to depend on what goals you have. If, for example, you have just become a parent you can take out a term life policy of about 20 or so years. That way, your young ones will be covered until they are no longer dependent on you.
What is the whole life?
Whole life is an insurance policy that covers you for your entire life, not just for a certain number of years like term life does. It has both death benefit and cash value.
With a whole life policy, the coverage amount is fixed, meaning you cannot increase it or decrease it. Also, with term life packages, your premiums drop as your child gets older and no longer needs the protection.
However, with whole life, what you pay for stays the same, which can lead to some cases where people are paying too much for their coverage.
Term life vs. whole life: cost
Another major difference between the two types of policies comes down to how much money you have to pay in premiums. A term life policy will have much lower monthly premiums than a whole life policy because the term lasts for just a few years.
However, with whole life, you are protected for your entire lifetime, which is why the premiums are higher.
Term life vs. whole life: cash value
Even though with both policies you are protected in case something happens to you, the difference is that with term life, your money is only available if you die. However, with whole life, there’s also access to your cash-value account.
You can access the funds of this account after paying the premiums for a specific number of years. But once you take any money out of this account, your policy will lose some value.
Whole life insurance is not something that everyone needs or can afford, but it can be very helpful to have in case you want to invest cash for the future while also receiving protection in case something happens to you.
Term life vs. whole life: which is best for you?
When you are trying to decide whether term life or whole life will be best for you, it all comes down to your goals. Do you want a decently priced policy that covers you until your child reaches adulthood? Then, term life might be the way to go. Before taking any term life insurance package, you can always take advantage of comparison services from companies like MoneySmart to ensure that you are getting the best deals.
On the other hand, if you are looking for an investment account that will grow in value over time and also have a life insurance policy, whole life insurance might be the best.
Whole life insurance can be very helpful if you choose to invest because it holds its value regardless of whether the stock market is doing well or not, which means you will get all your money back after paying the premiums for years.
However, whole life insurance is generally more expensive than term life insurance and charges fees for any withdrawals you make from the cash-value account.
Now that you know the essential differences between term life and whole life, you can use that knowledge to pick out a suitable policy for your needs.