Life insurance is an important part of any family's financial security. Many people are not sure what type of life insurance policy they need, this can lead to a lot of confusion. In this article, we will compare two types: whole life and term life policies and help you determine which suits your needs.
The number one thing to remember is that if you're responsible for someone else's well-being or want to protect your family it's essential to have some sort of coverage!
The first question to ask yourself when deciding between Whole and Term Life is
How long you want the coverage to last!
Whole Life policies last your entire lifetime, whereas Term policies only last for a certain period (as defined by the policy). The typical term lengths are from 1 year up to 30 years.
Whole life is the only type of coverage that is guaranteed not to increase in price once taken. It also never decreases in coverage, so it is a very good idea if you're looking for something more permanent and reliable! This is extremely important as we reach retirement age. Upon retirement, we typically have to live on a fixed income. Sudden changes to bills are no longer something easily dealt with. Whole Life also allows you to build equity in your policy. Whenever you pay your monthly premium a portion of that is set aside in your policy as "Cash Value". Your equity can be loaned or withdrawn, meaning the longer you own the policy the more equity you build!
Typically only 2% of term life policies ever pay out a benefit. The reason being that we often outlive our coverage. An example of this is that a 20 something-year-old is likely going to live until they're 80+. So even with a 30 year fixed term the policy would either go up based on your new age at that point, it will lapse leaving you with no coverage, or in very few cases you can convert it to whole life at a substantially higher premium amount than what you were paying previously.
Term Life is undeniably cheaper initially when compared to whole life but can leave you in unexpected situations as we age and our budgets get tighter. The biggest reason that Term Life policies exist is they provide us with high payouts for a low cost while we are working which allows your family to replace any lost income.
If this is the route that you take its very important to do one of two things: Either save up for the higher cost of Life Insurance when you're no longer getting any savings on the premiums or what is more widely recommended get a smaller Whole life policy to keep those costs low for when your term expires/increases in price.
Of course, if you have any questions about this information or anything related to Life Insurance feel free to contact us! We would love to help you and your family!