which type is right for you?
Term-life insurance is affordable and straightforward, while whole-life does not expire and is more expensive. To decide between the two, it is important to know what makes them different and appropriate for you.
Buying life insurance seems daunting, but most people can start shopping by making one key decision:
Do you need term-life insurance or whole-life insurance?
Term-life insurance is “pure” life insurance. The policyholder pays premiums regularly. If they die while the policy is in effect, their beneficiary (or beneficiaries) receives a death benefit. It’s very straightforward, which is the selling point for people who want a simple life insurance option.
Term-life insurance is also relatively inexpensive. Because it’s stripped-down life insurance, without additional fees or maintenance, it’s much more affordable than whole-life.
Since life insurance is something you need to pay for over the course of decades, affordability is a huge consideration. You can more easily buy the coverage you need at a price point you’re comfortable with than with other types of insurance.
Term-life insurance lasts for a set number of years decided on when you purchase the policy. Terms are between 1-30 years and usually come in increments of 5 years. When the policy expires, so will your coverage. If you still want insurance, you’ll need to shop for a new policy or convert your policy into a form of permanent life insurance.
Physicians Planning Services offers this product to our professional and individual clients as well as our partners.
Whole-life insurance is a type of permanent life insurance, which stays in effect for as long as you pay the premiums. This means you never have to worry about uninsurability or losing your safety net as you get older.
Besides whole, other types of permanent life insurance include variable, universal and variable universal.
Whole-life is more complicated than term overall, but one definition you need to know is the cash value, which is an investment-like product coupled with the insurance policy.
How exactly the cash value works depends on the type of policy. For example, in a variable life policy, the cash value acts like a mutual fund, but, with whole life, it’s more similar to a simple savings account.
Your premiums payments are split between the death benefit and cash value. Over time, the death benefit shrinks and the cash value component grows until the policy consists entirely of the cash value. You can do many things with the cash value, including taking out a loan, drawing from it for retirement or funding the policy.