There are a lot of differences between whole life insurance and term life insurance. Click now to read this guide on how to choose best term life insurance plans
Find Out The Difference Between Whole Life Insurance And Term Life Insurance
When you plan for the safeguard of your family's future, the first thing that might come to your mind is purchasing life insurance. The benefits offered by life insurance can be used by your beneficiaries to tackle various expenses like funeral or burial costs, college education, medical service bills, and a lot more. Moreover, while you look through the various available quotes, you may notice that insurance companies offer both permanent and term life insurance products, each with its own sets of merits and demerits.
In case you find it hard to distinguish between whole life insurance and term life insurance, you're not alone. Although a lot of people already know that life insurance provides monetary benefits to your beneficiaries in the event of your death, they might not be able to mark out the differences between whole life and term life insurances. However, to enjoy optimal protection for your family, you must know how these two differ from one another.
What Is Whole Life Insurance?
With whole life insurance, you can enjoy lifelong coverage in addition to an investment component termed as the 'Cash Value' of the policy. It allows you to grow your capital slowly in a tax-deferred account, which means you won't have to pay any taxes on your money while it's being accumulated in the policy.
Whole life insurance can also be used as collateral for banks to borrow money or surrender the policy in case of emergency. However, if you fail to repay the loan against your policy, you may end up reducing your death benefit corpus. Surrendering the policy makes you ineligible for any kind of benefits or coverage promised.
While it may sound a bit complicated at first, whole life insurance is rather the simplest type of permanent life insurance. Here are the essentials you need to know about it:
● Its premiums remain the same as long as you're alive
● It offers a guaranteed death benefit
● It grows your cash-value account at a steady rate
Some whole life insurance plans allow you to earn annual dividends in which you receive a part of the insurer's profit. Depending on your personal preferences, you can either accept the dividends in cash, use them to reduce your premium payments, or leave them in your account to gain interest. However, keep in mind that dividends aren't guaranteed all the time.
What is Term Life Insurance?
As the name suggests, term insurance provides you coverage for a specified term. It's also popularly known as 'Pure Life Insurance' as it only provides you protection against untimely death in the form of monetary benefit to your family or dependents. The policy features no other benefits except the death benefit, provided that you haven't opted for any riders.
The policy allows you to choose the term while purchasing the policy from varying time frames like 10 years, 20 years, or even 30 years. Keep in mind that the premiums stay the same throughout the policy. When you purchase a term plan, make sure you keep these things in mind:
● Choose an adequate term that allows you to cover your family's financial requirements in the future in case of your death
● Choose an amount that replaces your income and helps your family to pay for expenses like child care
In a nutshell, you need term insurance that keeps you covered unless you've made every perquisite available for your family. Moreover, as nearly all the insurance companies offer term plans, you won't find it hard to find the one that fits the bill for you.
Term Life Vs Whole Life Insurance - Which One Is Better?
A term life insurance has always remained a popular choice for consumers, specifically young working professionals as it allows them to cover the loss of their income after their unfortunate demise and ensure a sustainable lifestyle for their loved ones. Moreover, it doesn't cost much as the underwriters assume you'll outlive the policy tenure based on various conditions. On the other hand, while a whole life insurance policy may cost you more, it comes along with a fixed premium and assured benefits.
While term insurance premiums are quite inexpensive initially, they tend to increase with time. In simple terms, your premiums may increase with time during specific intervals. On the other hand, the premiums for a whole life insurance policy might appear slightly expensive at first, they remain the same throughout the policy tenure, which makes them much more affordable than the former.
With both whole life and term life insurance plans, you can enjoy a guaranteed death benefit offered in the event of your unfortunate demise. While purchasing a policy, the insurer asks you to choose the desired coverage as per your needs. The amount is paid to your selected beneficiaries and they can use it as per their requirements.
A whole life insurance plan also provides a cash value in addition to the death benefit that accumulates over time until your policy remains active. The cash value of your policy allows you to use it as collateral for banks to receive financial loans in case of any emergency. In the case of term insurance, you don't receive any kind of cash value and there's no savings aspect in the policy at all. You're only covered against the risk of death and don't get to accumulate wealth with a term plan.
Purchasing life insurance is undoubtedly one of the most crucial decisions of your life. With that said, you should consider researching properly about the various aspects of life insurance policies to make sure you make an informed purchase decision and choose the best term life insurance or whole life insurance. As a foundational step, you've already learned about the differences between the two.