Term Life Or Whole Life – Which Insurance Do You Need? :: From Best Life Insurance Brokers
Term life insurance and whole life are the two categories that most policies fall under; when you purchase a policy, it will either be “Term Life” or “Whole Life”. Which one you choose will depend on many factors that you must take into consideration, and each one has its benefits.
Term life insurance policies provide coverage for a specified period of time, or “term” as the name implies. With a specific beginning and ending date, usually ranging between 1 year and 30 years, a Term policy is almost significantly cheaper than a Whole Life policy.
There are two main reasons for the price discrepancy. First, since a Term policy has a beginning and end, whereas Whole Life – also known as Universal Life Insurance – lasts for as long as you live, there is a good chance that the insurance company may collect your premiums without ever having to pay out on the policy. Since Whole Life lasts until you die, the insurer will almost always have to pay out on the policy.
Secondly, Term policies aren’t annuities, whereas Whole Life policies are. This means that with Term, the policyholder doesn’t get anything other than the coverage they are purchasing. A Whole Life policy on the other hand usually puts the payments into an annuity that the policyholder can access. This of course raises the costs to the insurance company, which in term bumps up the cost of the policy.
So why would someone choose a Term Life policy? Of course the cost is a big consideration. Many people feel that they can purchase a policy covering the likely time they’ll need it, without having to pay the higher costs for another type of policy. After all, a 65 year old can feel relatively safe that a 30-year policy will cover them.
Another reason is for “situational” coverage. One example might be work at a hazardous job, or during a dangerous time. Security contractors who work in unstable area’s, workers engaged in projects that might be very dangerous such as large construction projects, or in area’s prone to disease, etc. In these cases, a Term policy offers the assurance of coverage without having to pay the considerably higher premiums of an open-ended plan.
Both types of policies fill a very important need, but how do you decide which one to get? In some cases the answer will be obvious, as in the examples above. In every case though, important questions should be considered. Are you looking to cover a particular period, not just in your own life, but in someone else’s? Examples of this might be children who’s future you want to protect up until the time they become self-sufficient, perhaps once they enter or graduate from college. On the other hand, perhaps you want to provide protection of financial ruin for someone who will always be dependent on your finances, such as a spouse or child who cannot work for some reason.
Term life insurance can be a very good option in many situations, and if those circumstances match your needs, it is the most cost-effective way to assure that financial safety net. Just be sure that you have asked yourself the important questions first.
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