A matter of life and death… literally! Nothing is more stressful than figuring out what exactly it is that you want from life – and then, to step out onto the path of achieving it. Life insurance is one of those matters and can be extremely confusing and daunting. So, what is term life insurance? What is whole life insurance? And how can you obtain, precisely the information you require to make the right decision about life insurance for you, your loved ones or other beneficiaries, people dependent on you? Here, we’ll proceed to explain to you the common types of life insurance, so you can identify the one most fitting for you. To find out more and to check out your options – contact an insurance agent in your area now and get yourself insured!
Differences Between Whole Life and Term Life
The ambition of purchasing a life insurance, depends on several key factors, the most important one being financial constraints, and your budget. The perfect insurance policy should be based on your future goals, as well as the needs of those dependent on you – in terms of every unique situation – since it is such a personal matter. Life insurance is essential, and can prove to be a vital building block in the way of securing the future of your family, by enabling you to meet financial objectives and correct storage and care of your assets, all in a flexible, and accommodating way.
Starting from the basics – here lie some highlighted differences between whole life insurance and term life insurance, explaining what they are in the process:
What Is Term Life Insurance?
Term life insurance, as evident by the name, offers coverage for a specific, allotted period of time, and is time bound. If, say, you or your significant other passes away during the ongoing duration of the term, your beneficiaries will be provided with the cash payout – as per your chosen insurance policy.
An integrated feature of term life insurance, is that it proves to be far more pocket friendly and affordable than whole life insurance, and hence, makes for a more lucrative offer. In a term life insurance policy, there will be no cash out till either you, or your spouse are no more.
In summation, a term life insurance policy offers a credible backup option in the unfortunate case of death. It is there merely to ensure that your loved ones are safe and secure in such a crisis, and do not have to suffer further in a time tarnished by grief.
Now, coming to Whole Life Insurance:
What Is Whole Life Insurance?
Whole life insurance plans include premiums, also termed cash value insurance. Premiums are agreed, monthly pockets of money you pay to the company, and therefore, is a far more expensive option than term life insurance, but also adds value to the bargain by not being time restricted, and lasting a life time. Think of it is an investment.
Whole life coverage lasts throughout your entire lifetime. Now, immediately, this may sound like it’s a better option – but in reality, ultimately, you should not need life insurance for your ENTIRE lifetime! Why? Because at some point in time, you should be debt free, and have an emergency fund you or your loved ones can draw money from in case of a crisis.
Whole life insurance costs more because it’s designed to build cash value. It is also vital to be mindful of the fact that a life insurance policy, in any case, should not be a money minting scheme, or a stressful part of your life – it should be designed in a manner, that it provides you and your family comfort and protection.
To be clear, if you have to think of life insurance as an investment – there are far better options, and smarter ways you can invest in something other than an insurance policy – options that will reap you more profit.
Now, coming to a cost – comparison between the two:
Cost Comparison of Life Insurance
Suppose, a 35-year-old man has $100 per month to spend on life insurance. He surveys the market and finds he can purchase an average of $125,000 insurance for his loved ones. From an insurance agent vouching for whole life insurance – he’ll probably hear about a $100 per month policy.
However, if, in comparison, he purchases a 20-year term life insurance with coverage of $125,000, it will cost him only about $7 per month instead of $100. Hence, there is a huge difference between the two.
Now, all of the remaining $93 per month evaporates in the form of commissions and expenses for the first three years. After that, according to Consumer Reports, the cash value portion of his policy will average a 1.5% return per year for a whole life guaranteed cash value policy.
To make matters worse, whatever he saves will not even go to his family! Instead, the only benefit his family will receive is the face value of the policy, and what was decided upon in the contract, which in the case of our example, was $125,000.
But what if he invested that $93 each month for 20 years? With a 10% rate of return, that would turn into about $70,000. Even better, if he invested for 30 years it would turn into over $200,000! Now that’s real investment, instead of putting up a façade.
So, is there any way you can obtain both?
Should You Buy Both Whole Life and Term Life?
There is a possibility of owning both whole life insurance, as well as term life insurance plans. Generally, people who look into this option are those that already possess a whole life policy, and just want additional coverage on top. It is more of an extra cushioning, and layer of protection, which can be a good solution.
In another case, the person may already have a term life insurance policy, and just wants to invest more money for retirement, or wants to pitch it in as a long term investment. If such is the matter, he/she may be a lot better off purchasing a whole life insurance policy, that has the cash accumulation feature.
So now, that you are aware of the main differences between the two, and are probably already more inclined towards the option that better suits you – you are ready to make a well educated, and informed decision about the insurance solution you would want to opt for – one that proves fruitful to both you and your family. Contact an insurance agent in your area for further information!
How Much Term Life Insurance Do I Need?
Firstly, it is vital to be mindful of the fact that, that term life insurance should be obtained for both the spouses, regardless of what, how and where they may work. If one you stays back at home with the children, just think of the cost of childcare you would have to pay as a single parent, other than the irredeemable loss. Term life insurance is a must have for the both of you.
Our recommendation to you would be purchasing a policy that is 10 – 12 times that of your annual income, serving as a good fall back plan in case of loss of income, and is also a hefty replacement.
Get your family covered no matter happens, and keep them safe! Keep a check on your coverage, regularly, to ensure you are ready for an emergency.
How Long Do I Need Term Life Insurance?
You should target a term life insurance policy, that is viable till your children leave for college, and become independent. That can, optimally, range from 20 – 30 years depending on when you had kids, etc.
There is a lot that can happen in this time span.
Suppose, you obtain a term life insurance plan at the age of 30. And now, let’s assume you have a three year old child. Instead of celebrating, and making the most of his childhood, you’d be micro managing a million things – loans, future plans, juggling finances. You’ll be compromising your present, for your future.
Time flies by! If you move a little further up the time line, that tiny, adorable three year old will now be in college, and independent.
Now, imagine where you are in the future. Living debt – free, with sound investments, and a net worth of $500,000 – $1,500,000! Because you were forward looking, and prepared in advance – you are now secure, steady and peaceful. You can enjoy your retirement in tranquility.
So, instead of purchasing a whole life insurance policy, you went in for a term life insurance policy. This resulted in security!
Even if an unfortunate incident was to happen, your family would be safe and sound, and taken care of. You have nothing to worry about! You are now, in this manner, self insured.
The more you have in your pocket, in your savings, and in investments, the less you have to worry about the future, and less dire becomes the need for a life insurance plan!
In all honesty, no one has seen tomorrow. There is no way to tell when, why and where we may leave the earth. Every second counts in the journey we have embarked upon, and it is best to stay safe! Ideally, the best time for you to obtain life insurance is when you have a clean medical history, and a life of ambition ahead – in the prime of your youth.