If you’re considering investing in life insurance, one of your first decisions is likely term insurance vs. whole life insurance. The type of insurance you choose will dictate the level of protection you get, and for how long, so it’s important to understand which policy fits best for your individual situation.
What is the Difference Between Term and Whole Life Insurance?
There are a few key differences between term and whole life insurance, including:
- Length of coverage: Term policies only offer death-benefit coverage for the policyholder for a set number of years, while whole life, instead, extends through the person’s death.
- Whole life insurance typically provides both a death benefit and a cash savings, where term does not accumulate cash value.
- Premiums: Because whole life has a longer coverage period, monthly premiums may be higher than those associated with term policies.
- Living death benefit: Many policies only allow clients to add a rider such as a living death benefit—which enables the person to draw cash from the policy in the event of a terminal illness—to a whole life policy. Life Credit’s Living Benefit Loans, however, allow policyholders to borrow against the death benefit of both term and whole life policies.
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Term Insurance vs. Whole Life Insurance
So which type of policy is better?
It largely depends on a person’s unique situation. Term insurance is often a good fit for younger individuals, who want to protect their families in the event of an unexpected loss, all at a price that doesn’t break the bank. However, when the term finishes, the policyholder will lose protection, which can be a major disadvantage for those who want something to show for their investment.
On the other hand, whole life insurance is often the option selected by those thinking long-term. Such policies allow policyholders to accrue savings while also having access to a death benefit protection throughout the duration of their life. However, that coverage comes with a price tag, which may be prohibitive for some, especially those just starting out.
No matter which type of plan you choose, make sure to research your options to ensure you make a decision that maximizes your individual benefits.