Helping You Protect Your Money. Helping You Protect Your Future.
Although there is a myriad of hyper-specific types of life insurance policies on the market today, there are really only two major basic types: term life and whole life.
Many people recognize the value of health insurance and supplementary policies like accident insurance. Unfortunately, these same people often fail to see why they really should buy a life insurance policy.
The truth is, your family will likely need extra funds when you pass away, just as surely as you'll need extra money in the event of an accident or major health problem.
Before you can begin to figure out exactly which life insurance policy to buy, you first need to understand the basic facts on how term life versus whole life work.
What Is "Term" Life Insurance?
Term life insurance is any life insurance policy where the death benefit is for specified number of years (the "term" of the policy.) The policy's duration can be anywhere from 1 to 30 years, but most commonly, it will be 5, 10, 15, or 20 years.
Term policies can be "level" or "decreasing." Over 95% of term policies are, in fact, level term, which means the benefit and premium remain the same for the full duration of the policy.
A decreasing term policy is where the benefit and premium gradually decrease year by year. This type of policy will often make sense as well, since as the insured gets closer to retirement, the financial impact would likely be less on those he/she leaves behind.
What Is "Whole" Life Insurance?
Whole life is the same as "permanent life insurance." In other words, the benefit will be paid regardless of when the insured dies. That's a lot safer investment, but on the other hand, whole life costs substantially more than term life (which is why the latter is far more popular).
With most whole life policies, you have to keep on paying premiums till you're 100 (if you live that long!) or at least until age 80. But you can also get limited pay whole life. This is where you pay for only 10 or 20 years but keep the policy benefit permanently.
Whole life policies also have a "cash value," which means money you can get back out of the policy if you cancel it (term does not have cash value.) As an added benefit, you can borrow from or against the cash value if you need, say, a car loan with a very low interest rate.
With some whole life policies, you can also earn dividends, making it a quasi-investment strategy. And the same can be said of the little used universal life, which is much like whole life but a bit more tilted toward the investment side of the equation.
Which One: Term Or Whole?
If you are only looking to cover your loved ones against the possibility of an untimely passing of the breadwinner of the family, or to guard against their being left to pay a mortgage, then term life is probably your best choice.
If you want a death benefit to leave your loved one(s) no matter what, then you need to consider making a bigger investment - in whole life.
To learn more about the different types of life insurance and for help in discerning which may be right for you, contact Summerlin Benefits Consulting today!