What is term life insurance? How does it differ from whole life insurance? Term vs. whole life insurance – Which one should I get? What happens if you die before retirement age? These and many more questions come up for all people when questioning life, and also when asking about life insurance.
Many circumstances outside of our control might happen that could put you and your family in an unfortunate predicament. For example, if you don’t have life insurance, your family might find themselves struggling to pay off debts and cover funeral costs.
When talking with Nguyen from MN Financial Solutions LLC in Houston, one of our Trusted Financial Professionals, we were able to understand that Life insurance is meant to provide financial protection against death or disability. In simple terms on how they can get differentiated on goals, it comes to term life insurance provides coverage only during the policy period, whereas whole life insurance continues to pay benefits even after the expiration date (term).
Therefore, the type of cover provided depends on the number of premiums paid and the duration covered by the policy. While whole-life policies offer lower rates, they are more expensive because they pay higher dividends and provide greater flexibility. But what other things one must know?
Are you aware of the difference between whole life and term life insurance?
Whole Life insurance
Whole life insurance is an insurance policy that pays benefits for your entire lifetime, regardless of how old you are when you die. This means you can continue to get benefits if you live past 100 years old. Whole life insurance policies provide protection against financial hardship in addition to the assistance of benefits when death occurs.
What are the benefits of Whole Life Insurance?
- No matter what happens throughout life, whole life insurance provides financial security for your family. This type of policy pays benefits to beneficiaries regardless of whether they live or die. As long as you pay premiums and meet certain conditions, you’ll always receive ongoing payments. Unlike term plans where death benefits only kick in after the expiration date, whole-life policies continue paying benefits until the insured dies.
- There are no restrictions on cash value. With a term plan, the maximum amount of coverage you can purchase is generally based on the cash value of your current balance. However, with a whole life policy, you can take advantage of the full cash value benefit. When you add additional money to the policy, you could increase the cash value of the policy and earn interest on this sum.
- Whole life policies offer tax advantages. While you won’t enjoy any tax deductions from a term policy, whole-life policies allow you to deduct some of the premium paid on the policy. Furthermore, if you ever face a large tax bill, you might qualify for a tax refund.
- Whole-life policies typically cost less. Term policies usually require a larger initial investment. However, whole life plans often come with lower rates and higher savings for many years.
- Whole life plans may be cheaper when you retire. Generally speaking, whole life plans are cheaper than their term counterparts once you reach retirement age. This is because whole life insurance will pay out the same amount of money to beneficiaries regardless of whether the insured lives or dies.
- Whole life plans give you flexibility. Most term policies require you to actively manage your investments. By contrast, whole-life policies let you invest the money as you see fit. This means you can save for college, start a business, or even contribute to a 401(k).
- Whole life plans may last longer. Since whole life policies are designed to pay out over time, they tend to last much longer than term plans. The average life expectancy at birth is about 78 years. So, if you purchase a whole life policy now, you won’t have to worry about replacing it for another 30 years.
- Whole life policies cover more risks. A typical term plan covers just one risk — death. On the other hand, whole life policies cover things like sickness, disability, unemployment, and old age.
Term Life Insurance
Term life insurance is a type of life insurance that provides coverage for a fixed period of time (usually between 10 years and 30 years). This type of policy is often referred to as an “endowment” policy because the premium payments are intended to be used as an investment fund in order to provide income during retirement.
What are the benefits of Term Life Insurance?
- No Medical Exam Required
Term life insurance doesn’t require a medical exam or health history. This means you won’t have to pay any extra costs to obtain coverage. With traditional permanent policies, you’ll likely have to undergo a physical exam before being approved for insurance. And depending on your age and health condition, this may mean paying higher costs.
- Flexibility & Portability
With term life insurance, you can take coverage with you anywhere. Once you’ve purchased a policy, you can cancel at any time without penalty. However, permanent policies usually have a non-cancellable clause, meaning once you purchase the policy, you cannot change the company or cancel the policy without paying penalties.
- Easy Premium Payments
You can choose to pay your premiums monthly, quarterly, annually, or bi-annually. Depending on your preference, you can save money on your premium payments.
- Guaranteed Death Benefit
Permanent policies offer guaranteed death benefits. These guarantees are often paid directly to beneficiaries upon the insured person’s death. These guarantees are not offered by term life policies.
An overview of the main differences between these types of life insurance
Getting guidance from an Advisor like Man Nguyen from MN Financial Solutions LLC in Houston, who can help you make decisions based on your current circumstances and prepare for whatever might come next. Explore how different types of insurance policies work together to provide coverage for your family’s future.
Remember, Term life insurance is a type of life insurance that provides coverage for a fixed amount of time (often 10 years). After this period has passed, the policy expires unless your premiums are paid. Whole life insurance is more expensive than term life insurance but lasts forever. And, Term insurance is an agreement that provides protection against financial loss in case of death before retirement age. Whole life insurance is an agreement that covers both death and disability benefits.
Learn about all the various options available to help protect your loved ones’ futures. Managing daily expenses while planning for your family’s future goals can be difficult. A Financial Planner in MN Financial Solutions LLC in Houston can help you balance these often conflicting priorities, and guide you through every type of economic environment. Each type of Life Insurance provides different benefits and features, so get more information to find out which one meets your lifestyle need.