As I get older and my family grows, one question that comes to mind is, “will they manage if something happens to me? Particularly from a financial aspect.” I can’t do much to prevent the emotional impact, but I want to ensure that my family will not suffer financially if something should happen to me. But which type of life insurance policy is best for me and my family from a cost and coverage perspective? Term or Whole Life?
First and foremost, we buy life insurance to provide for our families in case we pass away unexpectedly and cannot provide for them any longer. This may sound simple, but sometimes life insurance products are designed to do more than this basic function, and that’s where buying life insurance gets complicated.
Term life insurance is the purest form of coverage. It is purchased for a period of time, or term, and when that period of time expires, the life insurance ends. It is common to buy a term policy for 10 to 30 years, though different periods are available. So if you die you win (so to speak). If you live past the length of the policy, you (or, more specifically, your family members) get no money back. Because the policies are temporary, and only cover death benefits only, a term policy is usually the cheapest life insurance to buy, and is the choice of most younger families. Get a free quote across multiple providers for term life insurance.
Whole (or permanent) life insurance, on the other hand, is designed to cover a person for their whole life. It builds a cash value or “savings account”, and so is a combination of life insurance and savings. As long as the policy is paid for, or paid up, the coverage will be in force. Because of this, whole life insurance is more expensive. If you live, you get back at least some of, and often much more than, the amount you spent on your premium. You get this money back either by cashing in the policy or by borrowing against it
The key is how long you plan to keep the policy. Most financial advisors will tell their clients, especially younger clients, to purchase term coverage. They do this because term policies are much cheaper, and the extra money can be used for other investments that may provide better returns than whole life policies. In most cases, this is probably good advice, especially for large amounts of coverage that growing families need.
However, term policies do expire, and a middle aged or older person may find him or herself without coverage just when it is much more expensive to buy life insurance. Not everybody’s need for life insurance ends when a policy does. In a perfect world, I would suggest buying a larger face value term life insurance policy with a large enough face value to cover a home mortgage, living expenses, and education. But I would also advise many clients to consider the purchase of a smaller whole life insurance policy, especially one with a ten year payoff. That way, when the person retires, they can be secure in the knowledge that their beneficiaries will get the benefits to settle final expenses.
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