Many insurance companies say cash value life insurance is a good investment vehicle. They sell it as a “tax-advantageous” way to save for retirement and other long-term needs. Others argue that life insurance is best used to provide for your loved ones in case you pass away early. In this article, we’re going to take a closer look at Term vs. Whole Life Insurance, and their advantages and differences.
What Is Term Life Insurance?
Term life insurance is for a set period of time the comes in spans of ten, twenty, or thirty years. Premiums are fixed for the entire length of your term.
- Provides death benefits only
- Pays benefits only if you die while the policy is in effect
- Easiest and most affordable life insurance to purchase
- Cost increases as you age
- Can be used as additional coverage with whole life insurance
What Is Whole Life Insurance?
Whole life insurance is a permanent insurance policy that covers you for life. It pays death benefits, but also can work like a savings account and allow you to accrue money.
- Provides death benefits as well as cash value accumulation
- Health examination is required to qualify for the best premiums
- Takes 12 to 15 years to build up good cash value
- Can be a good choice for estate planning
- A portion of the cash can be withdrawn or borrowed during the life of the policy
Term vs. Whole Life Insurance Considerations
When choosing between whole life or term life insurance, there are number of variables to consider. All of the following will influence your decision to choose the right life insurance for you. A knowledgeable life insurance agent can help you navigate these factors and determine which type of policy makes the most sense. Factors to consider include:
- Your current age
- State of health
- Financial needs of your family
- Plans for funeral and death expenses
- Age of your children
- Long term health expenses
- Mortgage and debts
- Retirement plans
- Estate taxes
For example, if you’re 35 years old, have young children, and are the primary income earner for your household, you might want to consider a term life policy that would fully cover your family’s financial obligations.
Alternatively, you could purchase a whole life policy that will cover your financial obligations and get additional benefits like having access to a growing emergency fund.
Should You Convert Your Term Life to Whole Life Insurance?
Most term life insurance policies allow you to convert your term policy into a whole life policy. Reason to convert may include:
- Your term life policy is about to expire and you are in your 50s or 60s.
- You want to extend your life insurance coverage, but term is no longer available or too expensive because of age.
- You’re setting up an estate and concerned about estate taxes.
- You need a non-taxable investment option
Conclusion
Both term and whole life insurance come with a lot of variables to consider. Each one can make more sense depending on where you are in life and your goals. An experienced insurance agent can break down the costs and benefits for each type of insurance for your unique situation so you can make an informed and confident decision.