With what seems like a hundred options when it comes to choosing life insurance, two types remain the most popular across generations – term and whole life insurance. So, the question remains: Which is better?
Prospective policyholders have a right to choose the policy that is best for them, and that will depend on their parameters around premiums, policy duration, benefits, and more. Insurance professionals like Sim Gakhar can help you find the best policy for your needs, but first, let´s start by getting acquainted with the differences between term and whole life insurance.
Term life insurance provides a guaranteed death benefit for the policyholder during a specified term. Once the term reaches its end date, the policyholder either renews their policy or terminates altogether.
If John has a 20-year term life insurance policy beginning when he is 40 years old, his beneficiaries would receive the death benefit if John passed away before he was 60.
At age 60, if alive, John would have to decide to renew his term insurance for another 20 years (or another duration) or allow it to terminate, ending his coverage.
Term life insurance is often sold for 10-, 15-, or 20-year durations. It is usually offered with coverage levels of $100,000, $250,000, $500,000, and $1,000,000.
Term life insurance costs are determined based on your provider, age, gender, and health. In some cases, providers may request that you undergo a medical exam. For more details on what may affect your life insurance premium, feel free to reach out to insurance professional Sim Gakhar.
Other health-related questions you may have to answer include inquiries about your job, smoking status, family history, current medications, hobbies, and driving record. All of these facets are taken into account when determining the premium for your term life insurance policy.
If your term life insurance expires and you decide to renew it for an additional term, your premium will be recalculated according to your age at that time.
Term life insurance offers the following benefits:
Many individuals choose term life insurance because of its budget-friendly premiums. Depending on your age and health, you may be able to contract term life insurance for as little as $20 a month.
Term life insurance plans are straightforward plans that provide a death benefit to the policyholder´s beneficiaries should they die while their policy is active. There are no additional savings or investment components – just the life insurance you are looking for.
Term life insurance is great for those who need a safety net during a specific time in their lives; for example, before paying off a mortgage or while paying for their children’s education. You can contract term life insurance for the exact time frame you need it with no further obligations.
Term life insurance has the following drawbacks:
As mentioned under costs, term life insurance premiums are affected by your provider, age, gender, and health. Many providers require policyholders to undergo a medical examination before finalizing their policy price, which means your premium will go up should your exam show any medical concerns.
While its short duration works for some, term life insurance also means that you may pay your premium for 10+ years and never receive a physical or financial return. Other than peace of mind, term life insurance does not provide a direct benefit for those who outlive their policy.
Whole life is a type of permanent life insurance. This insurance type offers you protection for the duration of your life so long as you continue to make your premium payments.
Whole life insurance also accumulates cash value, taking a portion of each of your premiums and moving it into a cash value fund. This cash value grows tax-free and can sometimes provide the policyholder with dividends. Policyholders can borrow against or withdraw this cash value under certain circumstances while they are alive.
Whole life insurance is a great option for those who are looking for permanent coverage with both a death benefit for beneficiaries and cash accumulation for the policyholder.
Whole life insurance benefits include:
Whole life insurance offers the same monthly rate for the entire policy, which means no surprises when it comes to your premium.
Some providers even offer a 1-2% annual interest rate on your payments. Another possibility includes receiving nonguaranteed dividends, increasing your total return.
Since a portion of the premium is deferred towards the policy´s cash value, policyholders can accumulate cash for withdrawal or to borrow against for upcoming major events, such as education or healthcare-related expenses.
Whether it´s taken out or kept in the fund, the cash value grows interest-free.
Whole life insurance drawbacks include:
While the cash value adds depth to whole life insurance policies, it isn´t treated as a separate entity from the policy´s death benefit. If you were to take out a $50,000 loan off your policy´s cash value, for instance, and you died before repaying the loan amount, your beneficiaries would receive $50,000 less than the original death benefit, plus any interest due.
Whole life insurance, overall, provides more than term life insurance, but at a higher cost. Its complex system also includes things like surrender charges, if the policyholder decides to abandon their policy altogether.
There are many things to consider when choosing whether term or whole life insurance is better for you. Each person is unique, which is why consulting with an insurance professional like Sim Gakhar brings clarity into this decision-making process.
Sim Gakhar is able to lay out all of your options while taking into account your financial and personal situation and needs.
With years of experience and certifications in both insurance and investments, Sim is looking forward to helping you choose the right policy, today!
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