Which Should I Choose: Term or Whole Life Insurance?

What is Term Life Insurance:

Term life insurance provides coverage for a certain period of time. Policies are typically issued for between 10 and 30 years in increments of five years. Term insurance is designed to protect your dependants in case of your death and is considered the most affordable form of insurance. Payouts are only made if you die within the timeframe of the policies term as there is no cash balance that accumulates and there is no other value to the policy.

Term insurance is great for individuals who are seeking the highest amount of coverage for the lowest cost possible. Some considerations you may have when buying term insurance are:

  • Make sure you buy a policy that coincides with the amount of time you feel you need coverage
  • Buy an amount that will provide your family plenty of income to meet their needs after you are gone.

What is Whole Life Insurance:

As the term implies, whole life insurance provides coverage for your entire lifetime whereas term insurance is only for a specific amount of time. Whole life insurance also accumulates a cash value over time whose earnings are tax deferred, meaning you won’t pay taxes while the balance is accumulating.

Many whole life policies also earn annual dividends, which insurers payout at their discretion with the profits of the company. These dividends are not guaranteed but if paid, you have the option to take the dividends in cash, reinvest them in your policy, repay policy loans or buy additional coverage.

A whole life policy allows you to borrow money against the cash balance, or you can simply withdraw the cash balance without repayment. If you choose to withdraw and not repay, your death benefit will be reduced by the amount of cash you withdraw.

Some benefits of whole life insurance are:

  • The premiums remain fixed for your entire life
  • The cash value account grows at a guaranteed rate
  • Dividends are often paid
  • The death benefit amount is guaranteed and in many cases can increase over time
  • The cash balance be used to fund college expenses, major purchases, tax-free retirement income

Which one is right for me?

There is no right or wrong answer to this that can apply universally. You should speak with your advisor and discuss your financial situation, budget and insurance needs. Often times, you may find that buying some whole life insurance in conjunction with term life insurance can be a prudent strategy which will allow you to have higher coverage amounts earlier on while still building a cash value and long term death benefit with the whole life policy.

To speak with an agent about which option is best for you, complete our contact form below and we’ll be in touch to review your options.

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