If you have finally decided to purchase life insurance, your next big decision will be what kind of insurance to get. With two of the main options being term and whole life insurance, it will help to know the key differences between the two types of policies so you can make an informed decision.
Term Life Insurance
Term life insurance gets its name because you are only buying coverage for a very specific term. While it is common to see term life insurance policies that last for 30 years, you can also purchase a shorter policy as well. Your beneficiaries will only receive a death benefit if you pass away during the terms of the policy.
There are also several kinds of term life insurance policies, with each one having its own pros and cons. Convertible term insurance has the ability to convert the policy to a whole life insurance policy at some point before the policy expires.
Increasing term insurance will increase the death benefit as you near the end of the policy's term, which means that there won't be much of a death benefit if you pass soon after getting the policy. A mortgage term is the reserve of the increasing term insurance, with a bigger payout near the beginning of the policy. This type of life insurance is specifically designed to help cover a mortgage in case you were to pass away, with the payout reflecting how much is left to pay off your mortgage.
Whole Life Insurance
When you buy a whole life insurance policy, you're purchasing coverage that will last the rest of your life as long as you continue to pay your premium. Since there is no expiration date on a whole life insurance policy, some people decide to use it as a form of investing. Your beneficiaries not only receive a death benefit when you pass away, but there is also a cash value of the policy that you can withdraw during your lifetime.
A whole life insurance policy is a tax-deferred form of investment. The money that you put into the policy is allowed to grow tax-free while it is earning money, but you pay taxes on the earnings when you withdraw the money.
When compared to term life insurance, the premium for whole life insurance is going to be much higher when it comes to how much you pay. This is due to there being a guaranteed death benefit and the cash value of the policy. However, if you ever need to stop paying the premium on your whole life policy, then you will lose those benefits.
Contact a life insurance provider for more information.
