You will have a clearer notion of what you really need if you make a life insurance comparison. This article will help you sort out the difference between your two main line insurance options: term coverage and whole coverage.
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Once you understand the difference, and how both options relate to your goals, you can make an informed decision.
Whole life insurance versus term life insurance
Very few individuals who have shopped for, or ultimately purchased, life insurance policies have been able to escape the age-old debate of one type of policy over another; especially since each one has its own pros and cons. The right policy can make your life simpler, and more financially enriching, while the wrong one can cause you financial distress and bring you more headaches than you thought possible.
The Pros and Cons of Term Life Insurance
As the name suggests, term life insurance policies are set up to last for a specific length of time, or term. Once the term is up, it’s necessary to purchase a brand new policy. The length of the policy can be anywhere from 1 to 30 years, and is contingent on what exactly you’re looking for in the policy.
One of the benefits of term life insurance is that you get a lot for your money. In other words, for a small amount, you can get a great deal of coverage.However, it’s still important to shop around. There are still drawbacks to this type of policy. As mentioned earlier, once the policy’s term is through, you must not only re-apply, but you must also get a physical again. Additionally, your application could be denied, if there’s a change for the worst in your overall health. Also, the cost of the policy rises with your chronological age.
As a universal tenet, a term life policy is generally and largely a lucrative option for young, fit adults. You can use it to make sure that your dependents will be provided for until they enter adulthood. Just bear in mind that, as you age, and as your medical needs change, your premiums could increase. To figure out the amount of insurance coverage you ought to have, multiply your present income by the amount of time (in years) before you retire.
The Positives and Negatives of Whole Life Insurance
Sometimes called permanent insurance, a whole life insurance policy is yours for as long as you continue to pay the premium. This means you never have to reapply for the policy, and won’t have to deal with denial for age or poor health. Once you cash the policy in, you must purchase another policy. The upside is that whole life is like a savings account and a life insurance policy all rolled into one, and the account grows with each payment of your premium.
This type of policy is an ideal option for older adults who could encounter difficult or unyielding premium payments, or for anybody who has reached their annual contribution limit for their 401K or IRA plans. Although you will not be given a tax break, you’re capable of making a withdrawal that’s equal to or lesser than your basis, or contributions, all without having to pay taxes on it. Such a provision can be especially beneficial in a financial or physical emergency, but can also lower your policy’s value.
Another benefit of a whole life insurance policy is that your premium never changes once the policy is written, unless the death benefit amount (face value) is increased by you, the policyholder. However, not all life insurance policies have this provision, so it’s important to check ahead of time to see if your policy would have this feature.
Additionally, because a portion of your premium is invested by your insurance broker or company, it has the ability to gain tax-free, cash value over time. Also, you would actually get cash back from your policy, if you decide to cancel it prematurely. Beside this, you can also take a loan against the funds accrued in your policy’s savings account, although it’s important to bear in mind that it should be utilized for emergencies only.
There are also drawbacks to this type of policy. Because so many exist, it’s difficult to weed through all of them when comparison shopping. Therefore, it’s important to make careful comparisons, since policies do vary so extremely between companies. Additionally, it’s important to be wary of brokerage fees and hidden charges, which can easily significantly increase your monthly or quarterly premium payments.
Once you’ve made the life insurance comparison, which one is best for you?
Many factors should be taken into account when deciding on the appropriate type of coverage for you, including finances, health, age, personal preferences, and family needs. Once you compare your needs against the policy’s benefits and take these factors into consideration, your decision to purchase one type of policy over another, will be exponentially simpler. Start by getting free life insurance quotes; simply enter your zip code now!