While it’s uncomfortable to think about, it’s important to plan for your loved ones’ financial security if you were to pass away. Life insurance can help you do this. However, when navigating decisions about life insurance, there’s much to consider. One of the decisions you’ll have to make is deciding between the two primary types of life insurance: term life insurance and whole life insurance.
Term life insurance tends to be more affordable and flexible than whole life insurance, making it a popular option. While whole life insurance tends to cost more than term life insurance, it offers additional benefits like lifetime coverage and a cash value component. Let’s walk through the details of both options to help you decide which is right for you.
The Benefits of Term Life Insurance
As the name suggests, term life insurance is meant to provide coverage for a specific amount of time—the term length. Common term lengths include 10, 15, 20, 25, and 30 years. The right length for you will depend on your unique needs and circumstances, but having a variety of options makes it easy to customize this policy type to your specific financial goals and obligations.
One significant benefit of term life insurance, other than its flexibility, is its affordability. Because you only buy as much coverage as you need, premiums tend to be very reasonable—as low as $9 a month for some plans. This makes it easy to fit term life insurance into your short- and long-term financial planning. It’s important to keep in mind that the sooner you purchase term life insurance, the more affordable it will be. Therefore, it’s wise to purchase your policy when you’re young and healthy to lock in favorable rates.
When your term life insurance policy expires, so does your coverage. Luckily, the flexibility of term life insurance will offer several options if you still need coverage as the end of your policy approaches. You may choose to renew your existing policy, convert it to a permanent policy, or let it expire and purchase a new term policy.
Why choose term life insurance?
The two main incentives for people to purchase term life insurance are its affordability and flexibility. The simplicity of the plan structure is beneficial for many people, as you aren’t paying for coverage you don’t want or need. This makes it a great policy type for people with uncomplicated financial situations. When deciding if a term life insurance policy is right for you, it’s important to consider the following questions:
What happens to your family’s financial situation if you die unexpectedly?
Will the policy coverage be able to provide for your loved ones by replacing your income and covering both long-term and day-to-day expenses?
What other expenses, such as child care, could become the new norm for my family?
It can be helpful to consider choosing a term that expires once you've reached major financial milestones, such as paying off your mortgage or putting children through college.
Whole life insurance, on the other hand, falls under the category of permanent life insurance, providing a set amount of coverage as long as you live. Think of whole life insurance as a combination of term life insurance and an automatic savings program known as the policy’s cash value. Whole life insurance cash value behaves like a retirement fund, taking a long-term, risk-measured view to growth. In the event of your passing, the value of the policy is paid out to the beneficiaries.
The Benefits of Whole Life Insurance
While term life insurance tends to be the more affordable life insurance option, whole life insurance can have its benefits, too, providing both stability and flexibility. The money in a cash value account grows at a guaranteed rate, and you can borrow money from the account or give up the policy for the account value. These options should only be considered in the case of an emergency, but many people like the clarity of knowing they have this additional account if ever needed.
Another benefit of whole life insurance over term could be if you have a dependent with special needs or who would otherwise require lifelong care. In this instance, whole life insurance can help fund trusts designed to fund those needs.
Find Out What Type of Life Insurance Is Right For You
Both term life insurance and whole life insurance have unique advantages and considerations. If you’re trying to decide which policy type is right for you, Let SelectQuote help. With nearly 40 years of experience helping people make decisions about life insurance, we’re well-prepared to guide you through choosing between term and whole life insurance. In just minutes, we’ll gather different quote plans and details from trusted carriers, compare them on your behalf, and walk you through your options. You’ll walk away with peace of mind knowing your loved ones have the right protection at the right price.
