Do you Need Term or Whole Life Insurance?
By Andrea Bereznak
Most people I know don’t get overly excited thinking about insurance. After all, with insurance (think your auto policy) you pay premiums every month but hope you never actually have an accident or incident that requires you to use the insurance you’re paying for.
Insurance is a key component of your financial health though, so hear me out.
People own life insurance for many different reasons. Which type and how much is right for you depends on your individual situation. Here are some quick differences between term life and whole life, as well as when they may be appropriate, to get you thinking.
Term Life vs. Whole Life
Term life is named such because the insurance coverage is provided only for a certain term, or time period. Common terms are 10, 15, 20, 25, and 30 years. Essentially, if you purchase a 20-year term life policy, your beneficiaries will receive the death benefit only if you die within the 20 period. If you outlive those 20 years, the policy ends, and nothing is paid out. There are some nuances here, but that is the basic term policy.
With whole life insurance, as long as your premiums are paid, the death benefit will be paid out when you die, regardless of your age. Again, there are some nuances that we won’t cover here.
As you would expect, whole life insurance is more expensive than term life because it guarantees that the death benefit will be paid at some point. Term life insurance might expire before you die. The shorter the term of the policy and the younger you are when you buy the policy, the lower the premium cost.
When to Choose Term Life
When you have debts to cover or dependents who will need financial support if you were to die. For Example:
- You are a primary breadwinner, and your family would suffer if you were no longer alive earning income
- You want to pay for your children’s higher education even if you die, and haven’t yet saved funds
- You have a mortgage on your home that you want to have paid off should you die
- Your budget for life insurance is very limited
When to Choose Whole Life
When you want to leave a tax-free inheritance or provide cash to help estate liquidity issues when you die. For Example:
- Your heirs will need cash to cover funeral, burial, and your other end of life expenses
- You want to leave money to your children, grandchildren, or favorite organization when you die
- You don’t have other financial investments and want to ensure your spouse has money to live on after you die
These are just a few examples of situations in which term vs. whole life are appropriate. Your circumstances are unique and will dictate the right option, amount, and features for you.
One Final Tip
Both term and whole life insurance require an application and medical review. Not everyone will be able to obtain coverage. When we are younger, we are generally physically healthier and have a lower statistical probability of dying soon. This means that the earlier you apply for life insurance, the lower the premiums will be and the more likely you are to be approved with a good rating.
If you have questions about life insurance, call us at (480) 507-2425 or contact us online. We are happy to do a complimentary insurance analysis to give you financial confidence that you have the right coverage for your situation.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.
The content in this article was prepared by the article’s author. Voya Financial Advisors, Inc. does not endorse its content, and the views expressed may not necessarily reflect those held by Voya Financial Advisors, Inc.