If the difference between term and whole life insurance seems a little vague to you, you’re not alone. While most people know that a life insurance policy will pay money to whoever is named as the beneficiary once the policy holder passes away, they may not be able to explain the differences and benefits of term and whole life. But if you want to get the best protection possible, you need to know the basics of each of these two policies. Getting life insurance for your family can give them financial protection after you have passed away, because the beneficiary will receive the cash amount to pay for funeral expenses, mortgage costs, or any other expenses that he or she feels is necessary.
Features and Benefits of Term Life Insurance
Term life insurance is the simplest to understand. You pay your scheduled premiums, and the insurance company will agree to pay the death benefit if you were to pass away during that term. Term life has several benefits, which include:
- Low initial cost — You can purchase a large term policy for a small premium amount.
- Flexibility in coverage benefits — You can match the policy to meet your specific needs, and matching them with the right amount of insurance will give your family the time and money they need to make important financial decisions.
- Convertibility — Most term policies can be converted to a whole life policy (with certain age limitations) if your temporary needs have evolved into something that will last for your entire life.
There is one drawback to a term life insurance policy. Because it’s meant to last for a specific period, many of them are guaranteed to renew every year at a higher premium. So, it may eventually become unaffordable.
Features and Benefits of Whole Life Insurance
Whole life insurance can give you benefits that will last throughout your entire life. It also has a cash value component that can increase over time, which you can use to borrow or withdraw from as you need it. Whole life insurance can have the following benefits:
- Lifetime Coverage — A whole life policy can cover you for the rest of your life instead for a specific term. As long as the policy is in force when you pass away, your beneficiaries will receive the death benefit.
- Cash Value Options — A portion of your premium payments become part of your policy’s cash value. And once a sufficient amount has been accrued, you can borrow or withdraw from it.
- Premium Options — For a traditional whole life policy, premiums are usually paid until you’re 100 years old. But there are some policies with a more limited payment period, where the policy’s premium is paid off after a specific number of years.
- Dividend Payments — The insurance company may pay dividends on some whole life policies, depending on its financial performance. They can be paid in cash, accumulate at a certain interest rate, be used to purchase additional coverage within the policy, or be used to lower your monthly premium. While these dividends aren’t guaranteed, the possibility of earning them is an attractive feature.
- Estate Planning — Many people want to leave assets for the next generation, give something to charity, or leave money to someone with special needs. And whole life insurance can be a great way to achieve these goals.
While whole life insurance policies can come with many benefits, their premiums are higher than term policies. But you shouldn’t get cost mixed up with value. The benefits of lifetime coverage can pay off over time, especially with regard to its cash value component. Be sure speak to someone at JWB Insurance for more information.