Insurance Made Easy: Term vs. Whole Life Policies
Life insurance can be a difficult subject to approach, and it’s perhaps one of the most complicated areas of personal finance. However, at the most basic level, it’s not as complex as you might think. Most life insurance policies come in one of two main kinds, term life and whole life. What’s the difference?
Term Life Insurance
With term life insurance, your payments and coverage are limited to a certain period of time. This could be anywhere between ten and thirty years, or until you reach a specific age.
The main use of this kind of insurance is to provide coverage until your financial commitments have lessened. For example, you may keep the policy until your mortgage has been paid off, or until your children have finished their education.
At the end of the insurance term, your payments will stop, your coverage will end, and you won’t receive any lump sum in cash.
The time-limited nature of term life insurance generally means the premiums are much lower than with the more open-ended whole life insurance.
Whole Life Insurance
As the name suggests, whole life policies provide continuous protection for the rest of your life, or until you cancel the policy. Importantly, the premiums you pay will build up a cash value in the policy as well as providing coverage.
You can access this cash value at any time and for any reason, or you can let it accumulate to provide a guaranteed income in retirement.
This combination of coverage and investment makes whole life a very attractive type of policy. However, it comes at the cost of significantly higher monthly premiums.
Which Kind Should You Choose?
Before taking out any insurance policy, it’s a good idea to get professional advice. But in general, if you’re looking for a low-cost way of providing protection for your family should you pass prematurely, term life is the most usual choice.
But if you’re looking to invest for your future as well as enjoying comprehensive coverage in the meantime, a whole life policy is generally the better option.
Of course, there’s much more to selecting a life insurance policy than those two simple choices. But once you understand the main kinds that are available, you can work with an insurance adviser to find the specific policy that’s right for your situation.