When you buy life insurance, you’re not only protecting yourself, but also your loved ones who depend on you. Life insurance pays out a beneficiary in the event of death so that your family doesn’t suffer financial consequences from the loss of an income earner or caregiver. Life insurance is usually broken into two categories—term and whole life, each coming with their own set of benefits and drawbacks. Here, we’ll help you determine which is right for you.
If you need assistance with your finances, work with a professional financial advisor from Good Life Financial Advisors of Mt. Pleasant. We’re ready to help create a personalized plan for your specific needs.
Term Life Insurance Pros and Cons
Term life insurance is the product most closely associated with other insurance products like auto, health, or renters insurance. With a term life insurance policy, you’ll be buying coverage for a specific length of time for a specific amount of money. Term life insurance policies usually last between 10 to 30 years and only provide benefits in the event of your death.
For example, if you’re a young person with a significant other but no children or other dependents, you might choose to purchase a 10-year term life insurance policy with $50,000 in coverage. This type of policy would cost only a few dollars per month and would pay out $50,000 to your beneficiary should something happen to you. In this example, your significant other would be able to pay the mortgage and other expenses without you as a source of income.
If you’re married with multiple children, a longer life insurance policy that covers the amount of time your kids need financial support would be more appropriate. Thankfully, when it comes to term life insurance, even a $500,000 policy stays relatively affordable. But remember, term life insurance has an expiration date and it will get more expensive as you get older. Plus, it only pays benefits in the event of your death, unlike whole life insurance.
Whole Life Insurances Pros and Cons
Oftentimes, life insurance is compared to an investment vehicle instead of other insurance products. When you see this comparison, the life insurance product is usually whole life. Whole life insurance is exactly what it sounds like—a life insurance policy that covers you for your entire life, regardless of how long that is. Additionally, life insurance doesn’t just pay out for your death. Whole life insurance has a cash value that grows, meaning insured people can tap the policy while they’re still alive. Plus, if your insurance provider has a profitable quarter, you might receive a dividend.
Whole life insurance is a hybrid insurance/investment product. While the policy covers your death benefits permanently, it’s also given a cash value by the policy writer. As long as you pay your premiums (which are usually much higher than term life policies), you’ll be able to access the funds as they sit in a tax-sheltered account. Funds from whole life insurance policies can be withdrawn or borrowed against, but you must repay what you take out if you want to receive the full death benefits. Loans made against whole life insurance policies also must be repaid with interest.
Whole Life vs Term Life – How to Choose?
Life insurance is two very different sets of policies, and choosing between the two is a personal decision—there’s no right or wrong answer. Whole life insurance provides the peace of mind of life-long coverage along with the option to withdraw funds or borrow against the policy if you need cash. You can even pass down a whole life policy to your heirs. However, these types of perks don’t come cheap, and whole life insurance policies are often far more expensive than their term life counterparts.
Term life insurance is extremely affordable, but it’s a bare-bones type of coverage. You’re only covered for the duration of the policy (and not a day longer), and your beneficiary will only receive money if you die. Term life policies have no cash value and can’t be bequeathed to an heir.
Work With a Financial Advisor
Choosing between policies depends on how much coverage you need and how long you’ll need it. Of course, your decision isn’t set in stone. Many term life policies can be converted into whole life policies at a later date. If you desire the security of whole life but can only afford term life, consult with a team member from Good Life Financial Advisors of Mount Pleasant about how and when to convert your policy.