Buy Term Insurance or Whole life Insurance : Your Guide to Picking the Right One

Term Plan Or Whole Life Insurance? Here’s Your Answer!

You know the importance of having life insurance but buying a policy is a daunting task. With so many policies on offer, how do you choose the best? Fixed or variable (indexed), regular premium, loan, or whole life – you’re bombarded with terms that sound alike and confuse you when it comes to choosing a life insurance policy. This is especially true if you have no prior experience. This ultimate guide explains what are whole life policy and term plans, how they differ, and how they complement each other to take care of your financial needs throughout life, so that you can choose whether you want to buy term insurance or buy a whole life policy.

What is term life insurance? 

If you ask someone to define “term life insurance” in one sentence, they might say something like this – Term life insurance is a policy that provides coverage for a specific term or period. It’s not the most exciting description, but it’s accurate.

The reason it’s called “term” is because the policy only lasts for a set amount of time. Most term policies last between 10 and 30 years, although there are some that last as short as 5 years and others that last 40 years or longer.

When you apply for a term life insurance policy, you will choose the length of time you want your coverage to last, and once that term expires, so does your coverage (unless you choose to keep paying the premiums to renew your policy). Sometimes people choose to get a new policy once their existing one runs out.

If you buy term insurance to protect your family (as opposed to getting it for business purposes), think about whether your family’s need for life insurance changes over time. For example, if you have young children who are still at home and you have a mortgage on your house, those could be good reasons to buy a longer-term policy.

1. Costs Involved 

Term life insurance is the most affordable type of life insurance. The premiums remain unchanged for the duration of your policy, and it provides your beneficiaries with a death benefit if you die while your policy is active.

2. Affordability

Term life insurance is affordable for several reasons. Because you can set the length of your policy, you’re only paying for the insurance that you’ll need. This will help to ensure that you pay consistent premiums over time.

3. Flexibility

The biggest advantage of term life insurance is that you can customize it to your needs. With a term life policy, you can choose the amount of coverage you need and how long you want your policy to last. You can also add extra protection, called riders, to your policy if you want some additional security on top of the basic coverage.

What is a whole life policy?

A whole life insurance policy is a good option because it covers all stages of life, from when you buy it to when you die. It lasts your entire life as long as you keep paying your premiums. This kind of life insurance includes a cash value component, which means that a portion of your premiums is invested over time and grows on a tax-deferred basis.

There are two types of gains: dividend and interest. Dividends are paid by the insurance company but do not have to be paid. Interest grows based on the performance of the investments in the policy: these gains are guaranteed since they are based on a formula that’s already been defined in the policy contract.

A whole life policy’s cash value provides several benefits that you can use while you’re still alive. After a few years, once it grows into a useful amount, you can borrow money against your policy’s cash value with loans.

1. Lifelong Coverage

Whole life insurance remains in effect for as long as you live and never needs to be renewed. It’s dependable, which means it can be a great option for anyone who has lifelong needs. For example, if your child has a disability, permanent coverage will give you peace of mind that they’re protected financially no matter what happens. It can also be a great way to leave behind a legacy for your family.

2. Cash Value 

You can accumulate cash value on a whole life insurance policy and use it for any expenses during the end of your life. That includes medical expenses, moving into a retirement community, or whatever else you need.

3. Associated Costs

Whole life insurance offers more value than term insurance, but it’s not necessarily more valuable to YOU. Whole-life policies can last your entire life, and they come with a cash value that you can borrow against or use as an investment. They’re also five to 15 times more expensive than a comparable term life policy.

Can You Have Both a Term and Whole Life Insurance Policy?

Yes, you can own multiple life insurance policies at the same time! In fact, in certain scenarios, it can make a lot of sense to own both a term and whole life policy. For example, you may have a term life insurance policy in place while your children are growing up, but also want to separately save for a funeral or end-of-life plan.

In this scenario, you could purchase whole life insurance in addition to a term life policy to help provide for those expenses in the future. Another example is when you have both short- and long-term goals. If you’re young and healthy with dependents, term life insurance is likely your best bet for covering your base needs.

But if you’re also looking to save money towards retirement or college costs for your kids — or simply want to have a more stable income stream during retirement — then purchasing a whole life policy could be right for you.

Final Words

A term plan is insurance for a specific period. Whole life insurance provides coverage for the entire lifetime of the insured. No doubt a term plan will be cheaper than a whole life policy and it’s recommended to go for a term plan when there are no dependents. However, if you want to provide complete financial security to your family in case of your death, then whole life insurance will prove to be a cost-effective option.

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