Life insurance is most often purchased to provide death benefits to your loved ones after your passing. After your death, your loved ones will continue to require financial support, but you will no longer be able to generate income for them. Death benefits can be used to supplement lost wages, and they can also be used to pay off debts, to pay for the kids’ college education, to find retirement for your spouse and more. If you have decided to purchase life insurance, you may be immediately faced with the important decision to determine if you want term or whole life insurance. These are two very different types of policies, so it is critical that you make an educated decision before you make a purchase.
Understanding What Term Life Insurance Is
Term life is appropriately named because it has a fixed term length. Coverage will remain in force as long as the premium is paid during the term. At the end of the term, coverage will cease, and no benefits will be available. Common term lengths are 10, 15 and 30 years, but other options are available through some providers. The longer the term, the more expensive the coverage is. Some will buy a single term policy to meet their needs. Others will purchase smaller term and whole life policies to meet various needs, or they may find that a single whole insurance life policy is all that they need.
Learning More About Whole Life Insurance
Whole life provides death benefits like term life does, but it generally does not expire. It remains in place for your entire life as long as you continue to pay on the premium. Because of this, the premium can be substantially higher. In addition, whole life often has a cash value component. A portion of each premium payment will be allocated to the cash value, so this balance will grow over time. In addition, this is often an interest-bearing account, so you can benefit from compounded interest. You may be able to borrow against these funds, or you may be able to withdraw the balance in some cases. In this way, a whole life insurance policy is a financial asset in the same way that a savings account is.
Determining Your Needs
As you can see, there are clear differences between these two types of coverage. It is important to find a policy that is affordable for your budget, so first consider your budget for the premium payment. Then, you need to determine the face value amount that is needed to provide for your loved ones. Think about the minimum amount as well as the preferred amount, and this will give you a range to consider when you are requesting quotes. Unless you know for certain that you only need a term policy, you can then request quotes for both term and whole life to determine which is most effective for your needs and budget.
Buying life insurance is an exceptional way to plan for the end of life. Take time to further educate yourself about the options. Then, request quotes from several companies to find the best rates.