Term vs. Whole Life Insurance: How to Choose Which is Right for You
Why should I have life insurance?
Life insurance is essential when it comes to protecting your family or anyone who financially depends on you, should you pass away. It can also ensure you are not leaving behind any financial burden to your loved ones.
Life Insurance can provide your family with a benefit to replace lost income, help seed an education fund for your children, or pay off a mortgage so they can stay in your home. Life insurance can provide you with the peace of mind that your loved ones will be taken care of should the unthinkable happen.
So, where do I start?
There are two main types of life insurance: Term and Permanent.
Term Life Insurance
Term Life Insurance is very simple and straightforward. You pay a set premium for a set number of years (the term), and if you pass away during that term your beneficiary collects a specified amount of money (death benefit).
Most commonly Term Life insurance is purchased to protect against a need that also has a defined period of time. Examples would be income protection and education funding until children are old enough to support themselves. Protection for a home mortgage. A business owner looking for income protection until retirement. As well as many other examples.
Term policies are popular because they are the most affordable type of life insurance, they are also very straight forward and easy to understand. The downside is Term polices are essentially a “use it or lose it” type of policy.
Permanent Life Insurance
There are several different types of permanent life insurance, Whole Life, Universal Life, and Variable Universal life being the most common (We’ll discuss these in more detail in a later blog post). All of these permanent policies are designed to stay with you indefinitely. Permanent life policies are typically purchased to protect against needs that don’t go away, such as final expenses or estate planning, and maybe even Long-Term Care. Most permanent policies also contain a “Cash Value” that can potentially be used as a living benefit.
Permanent life insurance can be significant more expensive than term life insurance; however, you are almost guaranteed to get some sort of benefit from the policy.
FAQ’s When Choosing a Policy
How much coverage do I need?
Most life insurance carriers offer some kind of calculator to help determine how much coverage you need, here is a good example of one from Nationwide: https://lifesales.nationwide.com/life/insurance-amount/2
I have life insurance through work, how do I account for that?
It’s a great benefit when employers offer group life insurance. Group life is usually very inexpensive and there are minimal to no application process. We would always encourage you take advantage of this benefit. The problem with group life is what happens to that coverage when you leave your job and or retire. The answer for most people is the group coverage goes away. One of the best solutions is a blend of group and individual coverage tailored to meet your specific needs.
How is cost determined?
Price and Application Factors:
Age – The younger you are when applying for life insurance the less expensive it will cost.
Health – The healthier you are when applying for life insurance the less expensive it will cost. Health is also one of the biggest factors is determining how the application process will go. Typically speaking the more health issues, the more a carrier will investigate and the longer an application process will take.
Locking coverage in while you are young and healthy can have major benefits down the road.
Optional Riders & Benefits:
There are many optional riders and or benefits included by different carriers to help customer your policy. We will discuss some of these more in depth in a later post, but here are some of the most common items to consider:
Accelerated Death Benefit – Allows you to collect all or a portion of your death benefit should you become terminally ill.
Long Term Care – Allows you to collect a portion of the policy benefit should you medically qualify for this endorsement to be triggered.
Term Conversion – Allows you to convert a term life policy to a permanent policy without having to go through underwriting.
Waiver of Premium – Waives premium payment should you become injured or ill and unable to pay.
Child Rider – Provides coverage for children within a certain age range.
If you would like to discuss what type of plan would be best for your specific situation please reach out today!