Term Life vs. Whole Life
The Ongoing Debate
Most people under 30 don't think much about life insurance, but there comes a time-maybe after the wedding or when the first baby is born-when one starts to think about how to care for one's family in the inevitable event of death. You would think that it's never too early to start, but depending on what type of life insurance plan you are looking at, it can be. Life insurance has so many variables that it is not an easy topic to clearly define. Your individual needs, savings, income level, health, current insurance and assets will all play a part in determining which type of life insurance is best for you, and every insurance company wants your business. Hopefully this article will answer some basic questions pertaining to both term life insurance and whole life; the two most common types.
Term life is the most basic and least expensive of all of the different types of life insurance. It is also the most straightforward. You get what you pay for. If you take out a $100,000 policy, your beneficiary will get $100,000 at your death. No more, no less. If your kids are teenagers when you buy the policy and make it a 10 year policy, your kids will be adults by the time that they need it-well able to fend for themselves. This is a particularly good policy for, say, a single parent in their mid thirties with two kids. It will provide for the kids with some income and a death benefit. Sine term life premiums start out low and tend to rise as the years go by, ( however, if you buy a level premium policy, you will lock in the rate for the term of the policy) you might want to consider how long you want to make the policy for. The shorter the timeline, the better the rates. The rule of thumb with term life insurance is less than 20 years-go for it. Long term life protection seekers might want to look at whole life.
The good news is that if you research getting life insurance online, both quotes and coverage are available with a neat little questionnaire which helps you determine how much and what kind of life insurance meets your individual and unique needs. These links are called "Needs estimators" or "Needs analysis" links, and can give you a very good idea of which type of insurance to choose, term or permanent.
Permanent life insurance comes in three common forms, although whole life is the most common and most popular form of permanent life insurance. Whole life covers you for the entire span of your life from the day you buy the policy, as long as you keep the premiums paid in full and on time. The big draw to whole life insurance is that the premiums are partly converted to a cash value account that can be borrowed against during your lifetime. Some companies even offer dividends of investment opportunities with whole life insurance. This is not available with term life insurance.
You will pay more initially for whole life than with term life, and not every cent of your payments will go toward your death benefit. This is good if you want to be able to withdraw money in later years for, say, your child's college tuition or have an unforeseen emergency. But if you die too early-heaven forbids-your beneficiaries may not get enough to cover your final expenses, such as burial costs, final medical bills, and mortgage coverage. (Of course you have a separate policy just for your mortgage, right?) If the amount of time hasn't gone by to be able to draw on the cash value that was set aside from the premium payments, your beneficiary will not be able to take that money out, so once again, your health and plans for the future are a big consideration when purchasing the right life insurance plan.
