Differences Between Whole Life Insurance Vs Term Life Insurance

Differences Between Whole Life Insurance Vs Term Life Insurance

Let’s talk about the difference between whole life insurance and term insurance. Because of our benefits receptor. Insurance can be a very confusing product. There can be many different types of policies combination of whole life insurance and term life insurance. When it comes to choosing which one your family should go with it's tough to know where to start. First, we're going to look at whole life insurance.

Differences Between Whole Life Insurance Vs Term Life Insurance
Differences Between Whole Life Insurance Vs Term Life Insurance

Whole Life Insurance

Whole life insurance ensures you for the duration of your lifetime. If you live till 50 it covers you until that point. And if you live to be a 115 your whole life insurance will also cover you to that point. The pros are obvious, that whole life insurance policy is for the duration of your life. Once you've been approved, they can't revoke your coverage as well. There is typical, a cash surrender value piece of whole life insurance policy. As the value of whole life insurance policy grows over the duration of your life. There is a piece of the whole life insurance policy that is invested in the company. You'll receive dividends in your insurance account that will grow this sum of money. In the future, you can actually borrow against this amount.

Some of The Disadvantages To A Whole Life Insurance Policy

If you do choose to borrow against that cash surrender value, you will be taxed accordingly. Additionally, whole life insurance can be very expensive costing individuals hundreds of dollars per month. If they sign up in their mid to late 20s, this premium will only increase with age. The earlier you sign up the better.

People who would choose a whole life insurance policy are typical, risk-averse. Individuals and individuals that don't believe they'll be able to pay off all their debts by the time they die.

Term Life Insurance

A term life insurance policy can be purchased in 5 10 20 or 30-year increments. Term life insurance policy will cover you for during of the term. If you pay into it for 20 years, you're covered for 20 years. After that point, you will not be paid on any money and you will no longer be covered by your term insurance policy. The benefit to term life insurance is that it is typically, a lot cheaper than whole life insurance policies. This might be for someone who thinks that within the next 30 years, they're going to get their financial house in order to pay down their mortgage and put their kids through school.

Setting yourself up for financial success. Means that, you don't have to renew that term life insurance policy. Because when you do renew it, it can be a lot more expensive. The cons to term life insurance policy are that you are only covered for the duration of the term. There is no amount that you can ever borrow against in term life insurance policy. It can be harder to qualify. If you're looking to renew a policy later down the road. 

As I mentioned earlier if you think that you're going to get your financial house in order in the next 10 20 or 30 years. Term life insurance policy might be for you. Typically, the term life insurance policies were much more affordable and suited our family's needs. That being said only you can decide, what's right for your family. And understanding, how much of an obligation. Your family would have to cover in the event of your death is important.

Think Before You Choose An Insurance Policy

Before you choose an insurance policy. Make sure, you understand, how much coverage you need? Because this will play into the cost of your premium. The best way I've seen this calculated is to total up all the debts. That you think that you might be outstanding within the next 10 20 or 30 years. 

For example: - Let's say you have a $250,000 mortgage, $10,000 in student loan debt and $1,500 in credit card debt. Additionally, you have one child and it costs $250,000 to raise them from age 0 at 18. Your salary is $60,000. Let's say you choose to opt for a half a million dollar insurance policy. This will ensure that should you pass away, your partner will be able to raise your kids. Send them to university and pay down any outstanding debts or to your name. Understanding this amount is a great way to plan for the future. 

Insurance is not a wealth building tool and it's something that, unfortunately, many of us has to pay into and hope that we never have to use it. Having a proper insurance policy that doesn't break the bank and ensures all your financial needs are met is a great way to set your family up for future financial success.

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