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Buying life insurance can be confusing. After searching online, you will be inundated with endless email offers and ads on social media. To choose the right type of life insurance, it is worth understanding the basics, so you purchase a policy that best suits you, your family, and your financial situation.
Life Insurance: What Type Do You Need?
You have two main options in purchasing life insurance: term and whole life. These two types of policies are quite different. Let’s cover the basics:
What is Term Life Insurance?
Term life insurance is the most affordable and often the best choice for younger people, as the price is calculated based on age and health. Many term policies do not require a medical examination. These policies remain in force for a set number of years, up to 30. You have two choices in term life insurance, level term and decreasing term. In level term life insurance, no matter what age you die, the death benefit is paid in full. In decreasing term insurance, the longer you live, the less is paid out in a death benefit. In most cases, level term insurance is the right choice.
Pros of Term Life Insurance
Term life insurance policies offer several important benefits:
- The premiums are lower.
- These policies are easier to put in place.
- The death benefit amount can be selected by the customer.
- It is ideal for young families.
- Term life insurance is cost-effective.
- It has the option to be converted to whole life insurance.
Cons of Term Life Insurance
- The coverage time is limited to a specific number of years.
- Once the term is ended, you have lost the money you invested in the insurance policy.
- You must requalify for life insurance after the term is ended.
What is Whole Life Insurance?
Whole life insurance is a “permanent” policy. As long as you keep your premiums paid, the insurance company is legally obligated by contract to pay your beneficiaries (the person or persons you name) the death benefit, no matter when you pass away. These life insurance policies are more expensive, require a medical examination, and do not expire, even if you live a long life. A whole life insurance policy has a cash value and allows you to borrow against them if needed.
Pros of Whole Life Insurance
- Whole life policies are permanent insurance and do not expire over time.
- The death benefit is paid no matter when you die.
- You can take a loan from your policy when it has accrued a cash value.
- The premiums remain the same in most cases, and if you live a long life, you may no longer need to pay for the policy monthly, with the insurance in place.
- Your whole life policy is an asset, building value over time.
- Some whole life policies pay dividends to the owner.
- The death benefit is tax-free.
Cons of Whole Life Insurance
- Whole life insurance is more expensive than term life insurance.
- It may take many years to build a significant cash value.
- Loans from a whole life policy are charged interest.
- These policies have less flexibility regarding adjusting premiums or the death benefit amount.
- To get coverage will require a medical examination.
Finding the Right Policy: Get Help.
We advise you to get help from an experienced life insurance agent, rather than buying online. We work to find the best insurance to match your needs and have access to the best policies, both term and whole life. Let us help!