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August 16, 2022

Differences Between Term and Whole Life Insurance

When you’re considering the purchase of life insurance, one of the most important things to know is the difference between term life insurance and whole life insurance. This knowledge will help you determine the best coverage for your particular needs.

Term Life Insurance  

  • Term life insurance will protect you for a specific period of time, such as 10, 15 or 20 years. After that time, your coverage will cease and all premiums you paid will be forfeited. 

  • Because of this limited coverage, initial premiums will be less than whole life. However, the premiums may increase with age, while your coverage most likely will not 

  • You may not need a medical exam to qualify for coverage. If you have certain medical conditions, it can be hard to qualify for whole life insurance. 

Whole Life Insurance 

  • A whole life insurance policy will protect you for your lifetime, assuming you pay the premiums. 

  • Initially, these premiums will be higher than term life insurance, but will not increase over your lifetime. 

  • Each year, a portion of your premium, and often dividends paid on that premium, will be set aside as your cash value, according to a schedule provided by the insurance company. 

  • Many people consider whole life insurance policies as a form of forced savings. Cash value policies often add far greater savings dollars than many people could otherwise accumulate and still provide for your family or funeral expenses after your death. 

  • As the cash value amount increases, you can borrow against the value of your policy for any purpose you choose. If the need for death benefits decreases over the years, you can use the cash value to provide additional funds for your retirement. Or you could use the cash value to pay college expenses for your child or grandchild.  

For many people, a combination of the two types of policies might be a good idea. You can begin with a whole life policy while you are younger and the premiums are more affordable. Then if you have a family to provide for, you may wish to add a term policy to the mix to provide a larger benefit while your children are young. Your need for this coverage might drop off when they are grown.

Because everyone has a different set of circumstances, consulting with an independent insurance agent is the best way to develop a coverage package that is right for you. By planning ahead you can be sure that the unexpected difficulties of life don’t catch you off guard.

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