When deciding on the type of life insurance to select for yourself, it can be daunting to select between the types. Here’s a deep dive into both types of life insurance.
Whole life insurance gives you lifelong coverage and provides some extra support during your retirement. While term life insurance covers you for a shorter period, it’s much cheaper and simpler. After you’ve passed, your family can use the proceeds from either policy to cover funeral costs, mortgage payments, college tuition as well as other expenses.
What Is Term Life Insurance?
Term life insurance gives you coverage for a certain time period and is often called “pure life insurance” since it’s designed only to protect your dependents if you die prematurely. If you have a term policy, your beneficiaries receive the payout if you die within the term. The policy doesn’t have another value.
You get to choose the term when you buy the policy, with common terms being 10, 20, and 30 years.
What Is Whole Life Insurance?
This type of life insurance provides lifelong coverage and also includes an investment component that is known as the policy’s cash value that grows very slowly in a tax-deferred account. This means you won’t pay taxes on its gains while they are accumulating.
You can borrow money against this account or surrender the policy for the cash, but if you don’t repay policy loans with interest, you’ll be reducing your death benefit. If you choose to surrender the policy, you’ll no longer have any coverage.
Confused About What to Invest In? Here Are Our Inputs:
Term life insurance:
– If you only need life insurance to replace your income over time, like the years you’re raising children or paying off your mortgage
– If you want the most affordable coverage
– If you think you might want permanent life insurance but can’t afford it, since most term life policies are convertible to permanent coverage.
Whole life insurance:
– If you want to provide money for your heirs to pay inheritance taxes or estate taxes.
– If you have a lifelong dependent. You should consult with an attorney and financial advisor if you want to set up a trust to look after them.
– If you want to spend all your retirement savings, still leaving an inheritance or money for final expenses.