Term Life Insurance vs. Whole Life Insurance
With all the available life insurance options, it can be confusing to understand which type of coverage is right for you. Here is what you need to know.
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What is Term Life Insurance?
Term life is an insurance policy that features level premiums over a set period of time and a death benefit that will pay out during that time. The term refers to how long this period of time will be. For example, there are 5, 10, 15, 20, and 30-year term policies. This type of life insurance coverage offers lower initial premiums and is ideal for those seeking a short-term solution for their life insurance needs.
What is All or Whole Life Insurance?
A Whole Life policy provides both level premiums and a guaranteed death benefit that will cover the insured for their entire life, so long as the premiums are paid. As the name suggests, this type of life insurance coverage will provide a death benefit for all of your life. If purchased at a young age, premiums are typically low and can be locked in for the duration of the policy. However, if purchased at an older age, premiums for an all-life policy can be expensive. An all-life policy will typically accumulate a cash value that can be used for loans in the future or to add to the original death benefit amount.
The Benefits of Term Life Insurance
In terms of initial cost, term life is ideal for those on a budget who want to provide protection for their loved ones but cannot afford a more expensive all-life policy. While this type of life insurance doesn’t have any cash value that can be used, there are numerous benefits.
For example, let’s say a person in their 20’s purchases a 30-year term life policy. In five years they develop cancer. Their policy is still going to pay out if they die before the 30-year term is up and they are also eligible for conversion to a smaller, whole life policy without having to go through underwriting. If they didn’t have that term policy before they developed cancer, many companies would refuse to write a life insurance policy on them and they would be considered uninsurable.
Term life is also beneficial for those who have larger death benefit needs. For example, if you have a $500,000 30-year mortgage, a term life policy is going to be much more economical than a whole life policy would at that amount. In addition, once that mortgage is paid off, the individual’s needs would be less and they can convert that term policy into a smaller whole life policy that will still provide a death benefit.
The Benefits of Whole Life Insurance
Whole life insurance policies offer protection for the life of the insured. In addition, they have a savings feature that grows throughout the life of the policy.
However, generally, whole life insurance policies tend to be expensive, usually offer a lower death benefit, and offer only a minimal rate of return as an investment.
The Here and Now
Three things are constant in this life — death, taxes, and the fact that you will never be younger than you are right now. Life insurance premiums are calculated at your current age. By taking action now, and locking in your insurability, you are not only providing your loved ones with the money they need to survive after you’re gone, but you are also providing for your own future.
We never know what tomorrow will bring, but we do know what we have today. Do you have the right type of life insurance to protect your family and assets? Do you have enough? Too much?
Contact us today and let’s get you and the family protected.
Ted Fischer is a Fee-Only Certified Financial Planner® & fiduciary, and the founder of Fischer Investment Strategies.
Drawing from more than 25 years of experience in the financial services industry, Ted's expertise includes retirement planning, investment analysis, tax planning, estate planning, and insurance.
Ted has an extensive academic background. He received his Certified Financial Planning (CFP®) designation from UCLA in 2011. He became a Qualified Plan Financial Consultant (QPFC®) and an Accredited Investment Fiduciary (AIF®). Ted has a Bachelor of Science in Marketing, with a minor in Finance, from San Diego State University.
