We at Kennedy Financial & Insurance Services Inc. understand that life insurance can be confusing. When you hear terms such as “term life insurance” or “whole life insurance,” it isn’t always clear which one you should choose. Today, we would like to give you an overview of these two popular insurance types so you can decide which plan fits best into your lifestyle.
What is the Difference?
Regardless of whether you want to purchase whole life or term life insurance, it’s important to understand that this is a personal decision that will lie solely on the financial needs of your beneficiaries. Here are some of the main features of each type of policy.
Term Life Insurance
Term life insurance provides death benefits only, and these benefits are only paid if you die while the term of the policy is in effect. With that in mind, it is the easiest and the most affordable of life insurance policies. You can usually purchase term life insurance for an amount of time that makes the most sense to you, including five years, 10 years, or even 30 years. This is where “term” comes from. However, this type of insurance will usually become more expensive as you age, especially as you pass age 50. If you know you will want life insurance after the end of the term, you will have to renew the coverage. If you would like, you can use this coverage as a temporary additional coverage with a permanent life insurance policy. Also, most companies will allow you to convert term life insurance to whole life insurance should your needs change.
Whole Life Insurance
This life insurance policy covers you for life with no end date, and it will provide death benefits as well as a cash value accumulation that steadily grows during the policy. You will usually need to qualify with a health examination, but you may be able to purchase it without an exam at a higher cost. It will take about 12 to 15 years to build a good amount of cash value, and this cash value is based on how much the return on investment is worth. Some of this cash value can be withdrawn from the account during the life of the policy if needed. Keep in mind that whole life insurance usually has higher premiums than term life insurance at first, but it can save you money over time if you keep it for a substantial amount of time.
What Needs to be Considered?
If you are having a difficult time deciding which option is best for you, there are a few things to keep in mind. While you might have a good idea of which one you want on your own, it never hurts to talk to a life insurance agent who can guide you towards the plan that makes the most sense. Here are some things to keep in mind:
- How old are you?
- How healthy are you at the moment?
- What are your family’s financial demands?
- Do you have any plans for funeral and death expenses?
- How old are your children?
- Do you have any current debts? What is your mortgage payment?
- When do you plan on retiring?
There are further questions about your children’s future plans, as well as about your intentions for your assets should you pass away. These will be asked by an insurance agent. Once you add up all of your expenses, debts, and future expected costs, you will have a better idea of how much money you will really need to cover your family’s financial needs.
How to Compare Term Life and Whole Life
Now that you understand the overall differences, it’s time to take a look at what they both cost. In order to do this, you’ll have to consider both the short term costs and the long-term costs of a whole life policy and term policy. Keep in mind that the out-of-pocket costs for whole life insurance is usually much higher than that of term life insurance. The money you pay into term premiums only cover a death benefit if you pass during a certain time during your term, while the money you invest in whole life insurance premiums builds up cash value you can use later or that will add to your benefit payout.
Should You Switch from Term to Whole?
Most term policies let you switch to permanent, whole life policies. When is the right time to do this? We think some good times include when your policy is about to expire, and you are in your 50s or 60s. Also, term insurance may no longer be available to you, or the price may go up because of your age. Maybe you want to set up a trust in your will, or you want a non-taxable investment option. Whatever the reason, making this switch can be the best way to continue your current policy, as well as build cash value that you can borrow from as time goes on. Of course, there are many variables, so it’s important to speak with an insurance agent before making a decision.
Can You Buy Both?
Yes, you sure can! Most people who consider this option usually already have a whole life policy, but they want additional short-term coverage for ten years or so. In this case, you can certainly purchase term insurance for the amount of time you feel you need. In other cases, people own a term policy and want to invest in a long-term investment for retirement or for estate issues.
Talk to Kennedy Financial & Insurance Services Inc.
If you are ready to get some quality assistance when it comes to choosing the best life insurance policy setup for you and your family, it’s time to give us a call. Our professionals want to help you take a look at your assets, what it is your family may need after you pass on, and aid you in making a decision about the best way to provide for them after you’re gone.