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About 15 percent of Americans say they don’t have life insurance because they don’t know what kind of policy they should get. Others are concerned about getting the right amount of coverage. Some are concerned about costs.
Understanding what type of policy you need will help you choose the right insurance policy. Deciding between term life vs whole life insurance is the first step.
Term Life vs Whole Life: The Major Difference
So, what’s the difference between these two types of policy? It’s actually right in the name.
Term life insurance covers you for a specific period of time, known as the term. Once the term is up, you’re no longer covered.
Whole life insurance, on the other hand, covers you for the rest of your life.
Picking the Right Policy
At first glance, the choice between term vs whole life insurance seems like a no-brainer. Why would you pay for a policy that’s going to expire?
There are pros and cons with both types of policy though. The right policy type depends a lot on where you are in life.
Many people choose term life insurance because it’s more affordable. It offers them protection for a specific period, such as 10 or 15 years.
If you have a large debt, like a mortgage, term life insurance could be used to pay it off if the unthinkable happens. That’s why term life is a popular choice for new graduates, homeowners, and new parents.
Whole life is usually more expensive. The benefit is that you don’t need to renew the policy. That means you or your beneficiaries will receive a benefit from the policy.
You may even be able to cash in a whole life policy, using it to fund retirement or a new business.
Challenges to Getting a Policy
Another reason many people choose term vs whole life is because it’s often easier to qualify for a policy. Whole life insurance may require you to pass a health examination. However, since whole life insurance provides permanent coverage, you may want to consider this type of coverage to address final expenses. Robert Schmidt of Burial Insurance Pro mentions that a burial insurance policy is a crucial part of a person’s financial plan. Ensuring that there’s coverage to address funeral costs provides peace of mind to your family knowing that these types of final expenses will be paid for through the proceeds of a life insurance policy.
It also takes time for whole life insurance to build up its cash value, so you may need to wait before cashing out.
Term life insurance becomes more expensive as you age. That’s another reason it’s popular with younger people. Whole life can save you money if the policy remains in place for a long time.
Another thing to consider is where you purchase your policy. In the article “Should I Buy Life Insurance at Costco?” from Simple Life Insure, Ty Stewart explains that Costco has only partnered with one life insurance provider, limiting your chances of getting approved for a plan.
A better option is to shop around with many affordable life insurance providers to find the best rates for you.
Protect Your Future
Deciding whether term life vs whole life insurance is right is something everyone has to answer themselves. Once you know the answer, getting a life insurance plan is a smart way to protect your finances and your future.
Looking for more great insurance advice? We have plenty of tips and tricks to help you build the future you want.