A Safety Net for Your Loved Ones: 4 Main Differences Between Term and Whole Life Insurance
We never know when “our time” will be. However, we know that whether it be in the next week or several decades that we want our loved ones to be financially cared for with or without us. Thankfully, life insurance, whether whole or term insurance, guarantees that a certain sum of money is given to our beneficiaries after our passing.
Although life insurance plans are important for most people to have, and a majority of would agree, too many adults don’t have life insurance. The reality of this is concerning. If you’re reading this, there’s a good chance that you don’t currently have life insurance.
However, picking just any type of life insurance isn’t a good idea. If you’re thinking about jumping on the life insurance bandwagon, make sure you understand the differences between term and whole life insurance.
1. Length of coverage
The length of coverage is one of the biggest, most obvious difference between term and whole life insurance. As the names imply, term life insurance or pure life insurance only offers coverage for a specific term like, say, 20 years. The point of term insurance is to provide protection for your dependents if you die earlier than expected.
Whole life insurance or cash value insurance, however, offers coverage for a lifetime, that is, as long as you continue to pay your premiums.
2. Eligibility for annual dividends
By opting for whole life insurance over term life insurance, you may be eligible to receive annual dividends. These dividends can be left in deposit if you want to earn interest, be used to decrease your premium or purchase additional insurance or can be cashed out. Whole life insurance dividends, though, are not a guarantee with all plans.
3. Cash value accumulation
Unlike term life insurance, individuals with whole life insurance plans receive a type of investment known as cash value. Your policy’s cash value will grow steadily at a guaranteed rate. Best of all, the gains are tax-deferred, allowing you to delay paying taxes on them until a future time period.
4. Costs
Because term insurance is not permanent and does not offer annual dividends or cash value, this type of life insurance has a lower premium than its whole life insurance counterpart. Due to the more expensive costs, those on a budget typically choose to opt for term life insurance.
Conclusion
Although term and whole life insurance are both types of life insurance, they are not one and the same. Term life insurance is exactly what it sounds like: it provides coverage for a certain timeframe or term. Whole life insurance, however, provides coverage for a lifetime.
As one would expect, whole life insurance costs more. However, with whole life insurance, you have eligibility to earn annual dividends as well as cash value. Choosing one or the other depends primarily on your goals and current situation. As you decide which is best for you, make sure to conduct solid research.
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