Choosing a life insurance policy is challenging enough without even considering the various types of life insurance out there.
However, the choice between term life insurance and whole life insurance will have a large impact on your daily life and the protection of your family’s financial independence in the years after your passing.
Today, we’ll look at the key differences between term life insurance and whole life insurance and provide you with clear definitions and differences to help you make the right choice for your unique circumstances. Read a detailed Primerica Review on this life insurance website.
What is Life Insurance?
If you’re thinking that life insurance is when you pay a monthly contribution to a life insurance company every month to get a lump-sum payout to your family in the unfortunate event of your passing, you would be correct.
However, you can’t just choose any life insurance policy. You have to apply, which involves a physical assessment and is also determined by your budget. The monthly contributions you make every month are called premiums, and these are determined by many factors, including activities, age, and occupation.
Life insurance is an umbrella term, and there are different types of life insurance you can apply for, namely term life insurance and whole life insurance.
What is Term Life Insurance?
Term life insurance is commonly associated with more affordable coverage and is often the cheapest form of life insurance. It’s known as term life insurance since it only covers a specific period, which could be anywhere from 5 to 30 years. It’s important to note that if you (or the insured) pass away during this period, your beneficiaries will be paid out.
This is often beneficial for many people who are making important life decisions or starting a family. For example, perhaps you take out a mortgage; if you pass away, the payout from the life insurance can help your partner to pay for the mortgage.
Furthermore the policy itself is easy to understand and is straightforward, making it a simple option for many people who want to reduce financial burden on their families during the time of their passing.
What is Whole Life Insurance?
Whole life insurance is commonly associated with being the more expensive type of life insurance, but because of that, it offers slightly more benefits. Unlike term life insurance, whole life insurance provides coverage for a lifetime if you make your monthly premium payments.
Many people who want to invest often take out this type of life insurance since a portion of the payments for the premium will be set aside and accumulate value over time, being exempt from tax.
Furthermore, the premiums that you pay every month is a fixed amount and doesn’t change, irrespective of changes in your health, age, or activities.
So, what are the key differences between these two types of life insurance? Typically term life insurance doesn’t have a waiting period before you get the lump-sum payment, in other words its instant life insurance. However, it’s common for some providers who offer whole life insurance to have a two-year waiting period.
The other key difference is in the premiums. With term life insurance the premium amount may vary depending on your age and health (as well as other factors), but with whole life insurance the amount remains the same.
In terms of practical differences, term life insurance is a great option to secure your family’s financial independence when making big life decisions at an affordable price. Whole life insurance is mainly used for accumulating wealth but also comes with the option of borrowing or withdrawing from the funds available.
What to Consider When Choosing
What should you consider before choosing? First and foremost, you should consider your goals and that of your family. Do you need them to be protected if you’ve just taken out a mortgage? Term life insurance is a great option. Are you looking to build wealth and protect your family, and you can afford it? Then whole life insurance is great for that.
The important thing to understand is that one is not better than the other, and it depends entirely on your situation, lifestyle, budget, and goals. Your circumstances will determine which is the better-suited option.