Term life insurance is an affordable option that only covers a specific amount of time. Whole life is an investment in which premiums are paid over the course of your lifetime and the coverage stays with you. This guide will help you sort out the difference between whole life and term insurance so you can decide what works best for you.
Whole life insurance is the first one that you think of. It’s the template, and it offers benefits that differ from term life insurance.
With a whole life policy, you purchase coverage and continue to pay premiums throughout your life. Your coverage is guaranteed as long as you continue to pay those premiums and keep your policy in effect. The main coverage of your policy is the death benefit, which is a value of $250,000, $500,000 or $1 million that your beneficiaries will receive when you pass away.
In addition to the death benefit, whole life policyholders can use a cash value account that grows in value over time. This account is held by the insurance company and during your lifetime you can withdraw from and borrow against the money in that account. Many people use this cash value as additional savings in retirement.
Whole life coverage is typically more difficult to qualify for. You may need to undergo a medical exam or fill out other health questions before the insurance company will consider accepting you.
What About the Cost?
With lifelong coverage, whole life insurance is also more expensive than term life insurance. These policies will typically have level premiums, but when you pay them every month for the remainder of your life, the cost adds up.
Term life insurance is the farthest option from whole life insurance, but is also a very common choice. Term life policies are often the most affordable choice for coverage, and can be an excellent solution for people with dependents and young families.
Term life policies offer coverage for a set number of years. You can find a policy with 10, 15, 20, 25 or 30 years of coverage. If you select a 20-year term life policy, the insurance company will guarantee that if you pass away during that term, it will pay your beneficiaries the death benefit.
If you outlive the term of your policy, your beneficiaries will not get any money. You can purchase a new term life policy, or prepare for this possibility by purchasing a conversion rider at the start of your coverage. This conversion rider will allow you to transition your term life policy into a whole life policy, so you can continue your coverage. Term life policies do not have a cash value account.
Term life policies also have level premiums. These can be much lower than whole life premiums. The older you are and the worse your health status when you purchase a term life policy, the higher your premiums will be.
Choosing the right life insurance policy can be difficult, but Hometown Financial Group can help. Speak with an agent today to get started.
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