Term Life vs Whole life Insurance
May 25, 2017
Safeguarding the future of your dependents does not begin in the future but it all begins now. That is why most if not all individuals in the working class category aim to secure the future of their loved ones through insurance products. Life insurance helps you achieve this and term life insurance is cheaper compared to whole life insurance in its own battle of term life vs whole life.
However, it is important to note though expensive, whole life insurance has other additional benefits. In the case of term life insurance, coverage is between one to thirty years and it is often referred to as the pure life insurance. The reason is because it is meant to serve your dependents in the event you die prematurely. The has no other value, which means that if you die within the term the policy covers, your beneficiaries only receive the death benefit.
It is important to opt for a term life insurance which is in line with when your family will need the funds the most such that in case you are not around, whatever you leave behind, will be able to supplement your income and serve them accordingly. If you live long enough, then such funds at maturity will serve as security for you when you finally retire.
In the case of whole life insurance, there is lifelong coverage as well as cash value, in which case, the latter acts as the investment component of this policy. No taxes are charge on your funds as the cash value grows and you can borrow against the policy, only that you will need to surrender your policy, meaning that you will remain without cover.
In the event you fail to repay this loan with the interest attached, then this will reduce your death benefit. The best thing with whole life insurance is that cash value growth and death benefit are guaranteed and premiums remain unchanged throughout your lifetime. Also, there is the probability of benefiting from the insurer’s surplus in this case, which is paid as dividends but there is no guarantee.
In the battle between term life vs whole life, Term life insurance may be cheaper but in most cases, you family will not get a payout because there is no cash value attached. It works best if;
- You are looking for the most affordable coverage available in the insurance market.
- If you cannot afford permanent life insurance but you want it because there is provision to convert most term life policies to permanent coverage.
- You are looking for a policy that will only cover a specific period such as the time to pay off your mortgage, or the time it will take to raise your children.
On the other hand, whole life is appropriate if;
- You want to equalize inheritance such as leaving one child with property and compensating that with a benefit payout for the other child.
- You wish to provide funds to pay estate taxes to avoid a case where your heirs have to sell part of the property in future to pay for such taxes in future.
- You wish to spend what you have saved after retirement and still cater for your funeral expenses because with whole life, a payout is guaranteed.
- You have a special needs child and you would want to have a fund to take care of that child.