Understanding the difference between your options is the first step in finding the right life insurance solution. We want to make the process simpler, so we have outlined some of the basic differences between the 2 main Life Insurance policy types – Term and Whole. Of course, there are a lot more variables and options to consider, so it is best to speak with a professional, but this explanation will build a solid foundation for your discussion.
Death Benefit Only
Term Life Insurance has the benefit of being more affordable, which is a budget-friendly way to get started with coverage. It allows you to afford a policy earlier in life and puts coverage in place for the time frame, or “term,” you choose (up to 30 years). Of course, there is a reason why it is more affordable - it is more basic and has an expiration date, so it only covers you for the life of the policy. In other words, if you wish to continue to have life insurance coverage after your Term policy expires, you may need to re-qualify, which would entail underwriting taking place when you are older, and potentially less healthy. Think of Term Life Insurance as having a “Death Benefit Only,” meaning it will pay out the “benefit” to your surviving relatives if you have a policy in place at the time of your death.
Living & Death Benefit
Certain types of life insurance also have a cash accumulation feature. This is one of the biggest benefits of Whole Life Insurance, as it can be used to help increase your quality of life while you are still living. It can help you reach savings goals and allow you to use those savings towards a new business, retirement income, and/or providing long term care. As we explained, this is a more expensive option, but it provides you with more coverage options. You can think of Whole Life Insurance as providing you with a “Living & Death Benefit,” allowing you to be better prepared for your future. The underwriting process may be more thorough as the company is considering all of the potential risk your future may hold (not for just a specific time frame), but it takes away the worry of having to re-qualify for life insurance if a health condition unexpectedly occurred.
Renting Vs. Owning
Another way to understand the difference between the two types of policies can be explained by using the comparison of renting vs. home ownership. Term Life Insurance is like renting, where it can be more affordable and allows you to prepare for other options. You have a wonderful place to live for the term of your lease, but you don’t have any guarantees for a renewal after it has expired. Whole Life Insurance is like home ownership, it can be more expensive, but you are able to build equity with your payments (cash value) and there isn’t an expiration date, so the policy covers you for the rest of your life.
Click here to learn more about how Whole Life Insurance works: