How to Choose the Right One?
After deciding to buy life insurance, you have to think about whether you want to get whole life insurance or term life insurance. Now, this can be very confusing because there are many factors to consider.
The purpose of life insurance is to provide financial safety for your family after your death. Each of the insurances has its own merit. This is why while choosing between the two types, you will have to think about the benefits they will provide and the cost it will occur to get them.
In this article, we will talk about everything you need to know about whole life insurance and term life insurance so that you can decide the best that suits your needs.
What are the benefits they provide?
Term life insurance, also known as pure life insurance, only provides a benefit commonly known as the death benefit. The death benefit is the total sum amount assured to the beneficiary in case of the death of the insured.
If you buy term life insurance, then the beneficiary will receive the assured amount only if you die within the coverage period. If not, then the policy will stop, and the beneficiary will get nothing. Term life insurance can be reviewed, but it will be costly.
You can also vail death benefits from whole life insurance. In this case, the coverage is set for life. The whole life insurance also provides cash value. Cash value is like a savings component that you can also borrow when needed as long as the insured person is alive.
The benefit provided by these two insurances can be used as income replacement, debt repayment, or funeral fees.
Despite the benefits, life insurance can sometimes seem costly, which is why choosing the right company is necessary. Globe Life Insurance provides these policies at a reasonable rate.
What is the timeframe of coverage?
The timeframe of term insurance is 1-30 years. Generally, people take coverages of 20-30 years. As mentioned above, if the insured dies within this period, then the beneficiaries will receive the payment.
Whole life insurance provides benefits for life, meaning it has no set time frame of coverage. It will be active until the day you die.
How much do they cost?
When it comes to the cost of buying the insurance, the main thing that differentiates the cost is the price of the premium.
Term life insurance is more affordable, and the prices of premiums are much lesser than that of the whole life. This is because whatever you pay monthly will steadily accumulate and create a lumpsum amount better known as the death benefit.
The cost of premium of whole life insurance is much higher than the term life insurance. This is because whole life insurance provides coverage for life and has an added cash value. It has a guaranteed rate of investment return. The cash value is also free of tax and can be borrowed anytime as a loan by paying a certain percentage. However, it can be borrowed as long as you(the insured) are alive.
Here is a quick comparison of the above discussion,
|Term Life Insurance||Whole Life insurance|
|Policy Length||Fixed (1-30 years)||For life|
Can Term life insurance be converted?
Conversion is easy from term life to whole life insurance. For converting it, you will not need to take another medical exam. However, the conversion price is high. This is because the premium rates are higher than the term life ones. So after the conversion, you will have to pay significantly higher premiums that are likely to be six to ten times more.
In most cases, people buy term life insurance because of its affordability, but one question remains.
When and why should term life insurance be converted?
Here are a few reasons you would choose to convert it.
If all debt has been repaid
People buy term life insurance, so when they die, it can be used to pay off any debt or as an income replacement. Now let’s say you bought a term life insurance of 30 years, and within that time, your kids have all grown up, and all your debt has been paid. In that case, if you do not have to leave an amount for any beneficiary, then it is better to convert.
If you want to build an alternative savings
The whole life insurance has a tax-deferred cash value. This cash value can be a great source of savings. A portion of it can be borrowed anytime during the coverage. The entire cash value can also be taken out by canceling the whole policy itself.
If you have a change of plans
Suppose you have a property to your name, but now you are worried about the estate taxes. The heir of the property will have to bear the estate tax in this case. In this case, whole life insurance can be helpful. The insurance amount can be used to pay off the taxes after you are gone.
If you have a lifelong financial dependent
For example, if you have a child with special needs, then your whole life insurance can create a fund for that person. In this case, you should consult with an attorney and a financial advisor on how to choose the right plan.
What should you choose?
Now that you have a better idea of both types, you can make an informed decision. It is better to choose term life insurance when it comes to affordability. You also have to be sure that you solely want your life insurance to be an option for replacing your income or paying off debt. If these are your top priority, then choose the term life.
If you want some other benefits like the above ones we mentioned that come with whole life insurance, then consider whole life insurance. Remember, the cash value cannot be received after you die. It can only be borrowed from as long as you are alive.
So it finally comes to you and your choice. Consider all the pros and cons these two policies have to offer and make the best choice that suits your needs.
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