Whole Life Insurance or Term?

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The decision to purchase life insurance is a decision that must be made wisely. It is not a good idea to just purchase a policy without first doing your research. Do not base your decision solely on advertisements or solicitations. You want to know what types of plans are available, and which plan will best suit your individual and family situation. It is a good idea to get information from several companies, and compare quotes and policies before purchasing a plan. You may also wish to consult a financial advisor. Also, take time to research customer reviews online. You can get your best information from customers that have experience with a particular company.


Why do I need life insurance?

Many young people may not be thinking about death or planning for death. It is not something people enjoy thinking about. However, death is a certainty that we will not avoid. So it’s necessary for many people to make a plan of what will occur in the case of their death. Do you have a family or spouse that depends on your income? What would happen if you were not there to support your family? There may not be enough income for your family to maintain the lifestyle that you have provided. This is the number one reason that people choose to purchase policies. It is a gift for your spouse or children, and will help them tremendously in an especially tough time.

  I do not have a spouse or a child. Why would I need life insurance? 

Sadly, death isn’t free. It will cost a substantial amount of money for any relatives or friends to arrange final expenses. This, or course would be the cost of burial, or cremation. A funeral will cost several thousand dollars in many cases. In addition, there are costs for caskets, burial plots, and headstones. If something were to happen to you, it is important that whoever will be making arrangements for services will be able to pay for the services. While cremation is less expensive, it can still be burdensome for relatives to find money to honor your final wishes.


 I have already pre-paid for my final expenses. Do I still need life insurance? 

Yes. Even if the arrangements are prepaid in full, there are also bills that will need to be paid after death. It is not uncommon for final days to rack up large medical bills. There will also be debts left behind. Any loans or credit cards in your name will still need to be paid. There will be final utility bills, or rents as well. Often an estate sale will be held for the sale of possessions of the deceased. Estate auctioneers will have fees. All these things can be covered with the right insurance plan. By purchasing life insurance, and creating a will, you will ease the stress on next of kin in an especially difficult time.  


 What type of life insurance is best for me?

 This will depend on a number of things. Budget, age, health, and dependents are a few of the factors that will influence your decision. There are a few different types of life insurance. This includes whole life insurance, term life insurance, variable life insurance, and universal life. The main difference in these is whether the policy will expire, or remain in place for life, so long as premiums are paid. For the purpose of understanding the difference, we will discuss the most popular policies, term life insurance, and whole life insurance.


What is term life insurance?  

 The word term refers to a specific length of time, commonly twenty years. Because the policy ends at a fixed date, there is less risk to the insuring company. It is likely that the insurance will not be claimed, because many people end up outliving their policies. Because of the reduced risk of paying a claim, term life insurance is often significantly more affordable than whole life insurance. It may be a good option for those people on a budget to purchase a term plan, as it typically offers significant savings over the whole life plans available. Rates will vary between customers.


Am I too old or too unhealthy to purchase term life insurance?

Age is a big factor in determining a term life insurance policy’s rate. A younger person will be able to obtain a policy cheaper than someone who is a bit older, because statistically, there is less of a chance that the young person will pass away within the twenty year term. Some term policies will not accept people of a certain age because of the significant risk that a claim will be made within the twenty year term. The same is true of health conditions, gender, ethnicity, and lifestyle choices, such as tobacco use. Tobacco use is required to be reported, and it increases rates for those who use tobacco. There are also health questions and pre-existing condition restrictions that apply.


In what case would whole life insurance be appropriate?

The advantage in whole life insurance is that it will not end at a certain date, so long as the policy is kept in good standing. Because it can be continued for life, it is almost certain that whole life insurance will be claimed at the end of life, as long as the policy is continued. This nearly certain claim rate results in higher monthly premiums. It is often ten times higher than a comparable level of coverage on a term life insurance plan. The higher monthly premium also exists because of the added value to the plans. One added value of whole life insurance is tax privileges. Another benefit is that whole life insurance plans will build cash value.

My insurance representative told me that I can save for the future with whole life insurance. Is this true? Insurance companies will often portray purchasing whole life insurance as a way of creating savings for the future. Unfortunately, whole life insurance is not the best tool for creating savings for the future. It should not be used as a sole savings device. For savings, it is best to look into other long term options such as savings accounts, CDs, 401ks, IRAs, or bonds. It is good to have a diverse portfolio package, with separate accounts for retirement, trusts, and final expense. A variety of assets paired with an appropriate life insurance policy is the best plan for a secure future for yourself and your loved ones.

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