When buying life insurance, perhaps the most common question people ask is, “Should I get term or whole life?” The answer to that question depends on who is asking it. Term life insurance provides coverage for a particular period of time while whole life insurance coverage provides a lifetime of protection. So how do you know which type of coverage is right for you and your family?
Term Life Insurance
Term life insurance is an affordable option that allows people to purchase a policy that will provide coverage for a specific amount of time. While premiums are generally low in the beginning, they increase as a policyholder ages. The policy offers a guaranteed death benefit but does not have any cash value. If an individual is looking just for a death benefit, term life is the way to go.
Another advantage of term life insurance is that in most cases a medical exam is not required. This is important because individuals who are older than 50 but still employed can get a term policy with a critical illness protection component. In such cases, a policyholder would be able eligible for a lump sum payment if he or she is diagnosed with a critical illness. The life benefit becomes effective again after the policyholder returns to work full-time and a certain amount of time as specified in the policy has passed.
If you are deciding whether to purchase term versus whole life insurance, keep in mind that before the age of 50 a term life policy is relatively inexpensive. After you turn 65, it is unlikely you will be able to purchase such a policy.
Whole Life Insurance
Just like its name implies, whole life insurance provides coverage for a lifetime. It also accumulates cash value that an individual can borrow against in the future. Whole life insurance premiums are initially higher than term life premiums; however, these premiums do not increase with age. Individuals who purchase whole life insurance prefer the security of knowing their coverage lasts a lifetime.
Many people with high incomes max out their tax-deferred investments and need another investment vehicle. A variable or variable universal policy provides them with such an investment vehicle. Finally, whole life insurance is a good option if upon your death your family is facing estate tax liabilities. Whole life insurance allows the transfer of this risk.
As is true in all insurance matters, talking to an agent who specializes in term insurance and whole insurance policies is the best thing to do. With the help of your agent, you can be sure that you and your family are taken care of in the best possible manner – no matter what the future holds.