Term Life or Whole Life Insurance: Which One Should I Choose?

Term Life or Whole Life Insurance: Which One Should I Choose?

Life insurance is a policy where the provider is obligated to pay a sum of money to the listed beneficiaries after the policyholder’s death. The policyholder makes periodic payments, known as a premium, to the insurance company until his or her death. Note that not all life insurance policies will kick in after death because some have specified term periods, which will be terminated if the insured person lives beyond the insured term.

What Are Term Life Insurance and Whole Life Insurance?

Term life insurance is a policy that covers a specified term, usually between ten to thirty years. If the policyholder dies within this period, the beneficiaries are paid the coverage limit. However, the contract is terminated if the policyholder lives longer than the allotted time.

Whole life insurance is the opposite of term insurance. It provides lifelong coverage as long you don’t default in paying premiums. A portion of your premium is used as a tax-free investment, which grows over time and can significantly increase your gains.

 

Which One Is Better?

The decision to take out a term or whole life insurance policy depends on your specific situation. Term life insurance is limited, while the whole life insurance policy offers lifelong protection—as long as you pay your premiums. However, there are various pros and cons of both policies, so you should weigh your options before purchasing either.

Term life insurance, which is designed to only pay beneficiaries after your death, is not an asset. Whole life insurance, on the other hand, has a cash value component, which can be considered an asset because it allows you to withdraw funds from your policy while you are alive. You only have access to these funds if you do not default in making monthly payments (premiums).

 

The Pros and Cons of Term Life Insurance and Whole Life Insurance

Here are some major differences between both policies:

 

Term Life Insurance Whole Life Insurance
Premium may increase over time The premium rate is fixed
Coverage lasts between ten to thirty years Coverage is lifelong
No cash value Ability to withdraw cash value during the life of the policyholder
Low initial premium Premium is significantly higher than in term policy

 

Factors to Consider Before Buying Term Life or Whole Life Insurance

Your situation is specific to you and different from others, so you must consider personal factors before deciding on which coverage to buy. Here are some things to consider before taking out a life insurance policy:

  • Your age

  • Your health – If you are healthy, a whole life policy may be a better option.

  • Your family’s financial needs – Do you have young children or an unemployed spouse? Purchasing whole life coverage is a good way to avoid financial difficulties should something happen to you.

  • Your children’s age – Buy whole life coverage if you want to ensure that your children’s needs are provided for throughout their years of dependency.

  • Funeral expenses

Despite the significant cost difference between a term policy and a whole life policy, if you weigh the pros and cons of both coverages, you may feel that whole life insurance has a better overall value.

When Should You Convert Your Term Life to Whole Life?

Here are some instances when you might consider converting your term life insurance to whole life insurance

  • When your health seems to have worsened, and you are highly unlikely to recover.

  • If you bought term life insurance because that’s what you could afford at the time, you may choose to switch when you have enough income to afford whole life insurance.

  • If you want to build your cash value so that you can make use of your investment while still alive.

  • If you want to leave an inheritance for your children when they attain adulthood.

  • If you want to have funds to cover your funeral expenses.

Which Type of Life Insurance Is Best?

The best life insurance coverage for you depends on your specific situation. Whole life insurance can give you lifelong coverage and is a cash value asset, while term life insurance covers you for a limited time but is cheaper and simpler.

Do you need help securing the right life insurance policy? If so, then contact the experts at Udell Family Insurance. We are ready to assist you with all your coverage needs today.

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