Choosing Between Term and Whole Life Insurance
Life insurance policies can offer different benefits to different people, depending on where they are in life. Term and whole life insurance are just two types of life insurance that people can use to protect their loved ones from a variety of expenses that they may not be able to manage on their own. Here, you can learn more about each of these types of insurance so you can make an educated decision about which one is right for you.
Who Buys Term Life Insurance?
Term life insurance is life insurance that has an expiration date. It's usually chosen by parents who want to provide for their underage children until they're old enough to provide for themselves. For example, a mother with two young children might choose to purchase term life insurance that lasts until her youngest child turns 21. Term insurance tends to be more affordable and more flexible than whole life insurance, which is another reason why it's a popular choice. For those willing to pay a higher premium, there are term life insurance policies in which policyholders can receive the full cost of their premiums back if they're still alive at the policy expiration date. However, in term life insurance policies, it is not possible to use the premium as a safety net in case of an emergency (this is a common benefit with other types of life insurance).
Who Buys Whole Life Insurance?
Whole life insurance is a type of permanent policy that provides some of the more traditional benefits of life insurance. The payments typically stay consistent from beginning to end, and each one will help the policyholder accrue more interest. Whole life policies don't have an expiration date, and they do have a savings component. For example, policyholders can take out a tax-free loan from their policy based on the premiums they've paid. This type of cash value loan isn't interest-free, but it can be a valuable resource if the policyholder hits a particularly rough financial patch. Policyholders can also use accelerated benefits to help pay for long-term treatment for a terminal or chronic illness. They can even surrender the policy entirely for cash. Those who take out this type of insurance generally have a spouse or permanent dependents for whom they wish to always provide.
Some people think of life insurance as a type of investment strategy. However, it's really designed to help loved ones make arrangements and take care of their financial obligations after the policyholder is gone. Whether you choose to buy term or whole life insurance, it helps to keep in mind the following questions:
- Who do you want to provide for and for how long?
- What financial plans do you have in place to safeguard against emergencies?
- How much money will your loved ones need to survive?
- Do you want a more flexible policy or guaranteed payments and outcomes?
When you are considering the life insurance options available, you should also remember that most insurance companies will work with individuals' requests, depending on their circumstances. For example, there are term insurance policies that allow policyholders to convert the policy into a permanent one if their circumstances change. So, if a single father who has a policy that will last until his children become independent partners with a new spouse, he may want to convert his policy so that it provides for his new spouse.
Whether you choose to buy whole life or term life insurance, it helps to plan ahead as much as possible. The more you understand what the options and consequences are from any event—from illness to financial crisis to death—the easier it will be to choose a policy that works for you and your loved ones.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.