Thinking about insurance is a scary reality that all adults eventually have to face. However, ensuring that your family has something to fall back on when you’re not there is the wisest thing you can do with your money.
If you’re considering getting one, it can be quite confusing to understand the various options. There are several policies catered to people’s needs these days, it’s only reasonable to feel lost.
Luckily for you, this article is here to help, guiding you on two well-known policies – Whole Life and Term insurance. By the end of this article, you’ll have a thorough understanding of the two and a good idea about which is suitable for you!
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Whole Life Vs. Term Insurance: What’s the Difference?
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If you’re worried about leaving financial burdens on your loved ones, after your death, then both term and whole life policies will serve you well.
In case you want other information on assurance for incidents like accidents, you can check out this website. However, if you’re here to know about the differences between these two specific policies, then look no further.
Term life policy gives you coverage for a limited time but has significantly more coverage than the whole life.
Whole life, on the other hand, is a lot more expensive than term assurance but is guaranteed to protect you for the rest of your life. However, this obviously depends on whether you’re paying your premiums regularly
While these are the fundamental differences, each policy has unique things to offer. Here’s an in-depth guide to give you a clearer idea-
Whole Life Insurance
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Also known as permanent assurance, this is one of the most popular policies out there. It covers you for a lifetime, ensuring that when you die, your beneficiaries will definitely get the benefits. Here, your cash value will grow slowly, and the premiums that you’re accumulating won’t be taxed.
The Details
Whole life Insurance also lets you borrow money against the savings account, which is a fund set aside from your premiums. However, to get the full amount for your beneficiaries, you’ll have to repay these loans. Any amount that is left will be deducted from the final death benefit.
What’s good about this policy is that your premium is never going to change, Usually, with such policies, the premiums keep increasing as you grow older. It also becomes even more difficult to qualify for. However, with a whole life policy, you won’t face these problems.
In fact, signing up for a whole life policy at an early age, if you can afford it, is an excellent lifelong investment. What’s more, there’s no hassle of taking medical exams either. Usually, all you have to do is answer a few questions about your health to qualify.
Pros
- Same premium to be paid throughout your life
- Guaranteed death benefit
- Guaranteed growth rate for cash value account
- Might get annual dividends
- Tax advantages
- Can cash-out loans
Cons
- Higher costs compared to term assurance- maybe 5 to 10 times more expensive than a similar term policy
- Building cash value might take a long time
- Not as flexible as other policies
- Loans might have interest rates
Term Insurance
Source: insured
This is a temporary policy that protects you for a specified period. The minimum term required to sign up is 1 year, but then you could extend it from 10 to 20 years. It also pays death benefits, but only if you pass away during the term you’ve signed up for.
The Details
To qualify for this assurance, in most cases, you’ll need to take a medical exam. The premium you pay is going to depend on a lot of factors like age, lifestyle, health, and smoking habits. This amount will likely change over time based on these factors.
Overall, the premium for this policy is a lot less than that required for a whole life policy. However, the coverage is very high. With this one, you also have the option to sign up for renewable and convertible contracts.
A renewable term lets you renew your policy for a specific period after your current one has expired. A convertible term lets you switch from your term policy into another plan.
Pros
- You can choose the length according to your needs
- Cheaper than the whole life one
- Flexible plans that allow you to convert or extend terms
- Option to create individually catered packages
- High coverage
- The payout amount is guaranteed
Cons
- Premiums are subject to changes
- The death benefit is not guaranteed
- No cash value component
- Has an expiry date
Which One is Right For You?
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So now that you know what each type of policy is, it’s time to assess which one is suitable for you.
Team Term Insurance
In the case of the term assurance, this is clearly more catered for people who only need protection for a certain amount of time. For instance, if you’ve got kids or a mortgage to pay off, this is a good option.
It is also a wiser idea if you can’t dish out a lot of cash at the moment. In fact, if you’re young and you want permanent life assurance, this is an excellent place to start. This policy will easily let you convert to the whole assurance plan at a later date.
Team Whole Life Policy
Honestly, if you can afford it, this is a pretty good investment. However, it’s even more useful for people who plan on leaving an inheritance or have heirs. This is especially the case if your future children or grandchildren might have to pay tax bills for your estate.
A whole life policy is also a popular option for parents of children who have special needs or are dependent on them in some way. This would ensure that even after death, these children are cared for.
Source: financedais
Final Thoughts
Whichever policy you choose, you must do your research well and consult with experts. Either way, you are investing your money into something, so you should know all the features and conditions beforehand.
