Deciding which life insurance to buy is a daunting task. Most policy shoppers start by asking themselves one crucial question: What is the difference between term and whole life insurance? The decision to take either of them depends on one’s financial goals and the needs of the beneficiaries.
- Whole life insurance is more expensive than term life. It is up to 5-15 times more costly.
- Most policy shoppers opt for term life insurance.
- Whole life insurance accumulates a cash value that is comparable to low-interest investment that term insurance does not.
Features of Term Life Insurance
It’s ideal for people who intend to build wealth in their most productive years, and have no need for financial security attached to net life insurance upon retirement.
- Has an end date. It covers a fixed period of time, 5, 10, 15, 20, or 30 years, known as a “term.”
- The premiums are affordable and can be paid regularly. However, it becomes expensive to buy as one advances in years. This is true, especially after your 50th birthday.
- Its goal is to protect your beneficiaries in case of premature death. If one dies within the term, the dependents are entitled to the death benefit. Ideally, one should buy a term life insurance that can provide for your family upon your demise.
- On request, the term insurance can be renewed on a longer-term length. You can also convert it to whole life insurance.
What Is Whole Life Insurance?
This insurance is the right choice if you have a child with special needs or provide a reliable platform for estate planning.
- It’s a lifelong cover that provides death benefits.
- Has a cash value that slowly increases at a guaranteed rate. It also attracts zero tax on its gains as long as it accumulates during the policy’s life.
- One can surrender the policy for cash or borrow a portion of the policy’s life value. To retain the death benefit, however, policy loans should be repaid with interest.
- Initial premiums are more expensive than term life. It doubles up as an investment account.
- It provides lifelong security and protection to your family should the unthinkable happen.
Factors to Consider when Making your Choice
It’s imperative to take a few variables into account when deciding between term life insurance and whole life insurance. The factors to consider include;
- Your age at the time of buying the policy
- Financial needs of your dependents
- Their age
- Future financial needs of your children e.g. college fees
- State of your health
- Long term financial implication of your health expenses in case of a severe illness
- The current mortgage you’re servicing and other such debts
- Retirement age and personal retirement package
- Your take on servicing a whole life insurance policy and never receiving its value back
- The need for an added retirement savings plan
Insurances providers advise shoppers to take a life insurance policy to cover you before the emergency happens. It is imperative to get things in order now when you can.