There are two main types of life insurance. Term life insurance offers protection for your loved ones for a specified period of time. Permanent (or whole) life insurance policies do not expire; they are intended to protect you for your entire life. Some types of these policies accumulate cash value. Read on to find out which may be right for you.
About Term Life Insurance
How long does term life insurance last?
It’s called term because the insurance lasts for as long as the term you select. Term policies pay death benefits — if you die during the period covered by the policy, proceeds will go to your beneficiaries. Term life insurance can be for as little as one year and up to 30 years. Most companies offer policies in increments of 5 or 10 years, so you can get coverage for 5, 10, 20 or 30 years, for example. Once the term runs out, you’re no longer covered. If you stop paying premiums, you won’t be covered, either.
Sometimes, it is possible to convert a term life policy into a whole life policy, but it depends on your insurance provider and their terms and conditions. This is one of the things to ask an advisor when considering options for life insurance.
How much does term life insurance cost?
Term life insurance is often the most affordable, because after the end of the term, coverage ends. You have to pay a premium for the entire term — usually, payments are made monthly. The amount of your premium varies according to your health and other factors, but will be lower than premiums for most whole life insurance policies, which last a lifetime and build cash value.
About Whole Life Insurance
What is whole life insurance?
As the name implies, whole life insurance covers you for your whole life, provided you continue to pay your premiums. Whole life insurance typically comes with guaranteed level premiums — the amount will never change as long as premiums are paid. Whole life insurance policies pay death benefits (proceeds after death) and they may also build cash value.
What does “cash value” mean?
The cash value of a whole life policy will grow each year, tax-deferred, until it matches the face value of the policy. You may have access to this cash through loan and withdrawal options.
How much does whole life insurance cost?
The amount you pay will depend on how much coverage you want. Also factored into the cost are your age as well as your gender and health, among other considerations.
So, should I buy term or whole life insurance?
Generally, you should consider a term life insurance policy to:
- Get valuable coverage at an affordable price
- Help cover specific financial responsibilities like a mortgage or college expenses
- Supplement a permanent policy or work policy
Consider a whole life insurance policy if you want:
- Protection for life
- Payments that stay the same each year
- To be able to put additional money into the policy on a tax-favored basis
- Cash value you can use while you are living
Please keep in mind that these are simply guidelines. You should speak with a trusted financial professional to assess your personal life insurance needs.
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