TERM LIFE vs WHOLE LIFE INSURANCE, HOW DO I CHOOSE
Overview
Do you really need life insurance? The short answer is yes. The type of insurance and how much will vary depending on your circumstances.
A key point to remember is that life insurance is not designed for the benefit of the insured, but as a comfort for the survivors.
In this blog post, we will discuss the two major types of life insurance along with their pros and cons. We will also discuss, briefly,
some lesser-known alternatives that really merit a closer look.
Term Life Insurance
Most of us are very familiar with term life insurance, to some degree. Term life insurance, as it implies, is for a specified period
or “Term”. This usually ranges from 10 to 30 years. If a policy holder passes away during that period, the beneficiary(s)
receives the payout for that policy. Typically, young adults opt for term life insurance because of the low upfront cost.
There are many variations, terms, and conditions associated with term life insurance. It’s wise to speak to a licensed insurance
provider or lawyer when deciding the specific details of a term life insurance policy.
Whole Life Insurance
Whole Life Insurance provides coverage for your entire life span, not just a set period of 10 to 30 years. Most often, whole life
insurance will cost more than term life insurance, but the benefit is that whole life insurance serves as an investment. After a
few years of paying premiums to a whole life insurance policy, you can draw on that policy if you find yourself in a tight spot financially.
Whole vs. Term Life Insurance Pros and Cons
Term Life Insurance Pros:
These policies are usually customizable to your timeline.
They are almost always less expensive than the whole life alternatives.
Term Life Insurance Cons:
If you cancel your policy, you may not collect on any monies paid toward that policy.
You could outlive your policy and any monies paid in will be forfeited.
Whole Life Insurance Pros:
With most policies, your premium will never increase.
The value of your plan grows over time, giving you a better return.
Whole Life Insurance Cons:
Whole Life Insurance plans have a tendency to have higher cost upfront and over the cycle of the policy.
You’re restricted to the length of policies that insurance providers offer.
Cost difference
Weighing the pros and cons of term vs whole life insurance depends on your long term and short term goals. If you only need insurance for a
few months or years due to being placed in a high-risk environment or job, term life insurance may be your best option. The lower cost will
make it easier to afford a higher insurance value.
However, if you are planning for long term, consider whole life insurance. It may cost more than term, but the benefits justify
that cost difference. And if you want to borrow from your life insurance policy, whole life insurance will allow you to do so. Term life insurance will not.
Other alternatives
Universal Life Insurance
Universal Life Insurance is similar to whole life insurance, but this option allows you to raise and lower your premiums. Some restrictions may apply.
Like whole life insurance, it is for your lifetime.
Variable Life Insurance
Like universal life insurance, variable life insurance is a permanent life insurance policy that also has an investment element built in.
Variable life insurance also has a cash value that is commonly invested in mutual funds.
Indexed Life Insurance or Indexed Universal Life Insurance (IUL)
Indexed Life Insurance is similar to variable life insurance, but the funds are invested in the stock market instead of mutual funds exclusively.
Typically, the insurer selects the stocks to invest in and is commonly traded on platforms such as Standard & Poor’s 500 or the Nasdaq-100.
Disclaimer: The information posted on blogs and vlogs by City National Bank is for educational and entertainment purposes only and is not intended as a substitute for professional or legal advice. City National Bank will not be held liable for any loss or damage of any kind in connection with this blog.
