Life insurance is an easy way to provide a financial safety net for your family just in case something happens to you. Your family can cover your final costs and living expenses like mortgage payments, college tuition, and other expenses. The process of selecting a life insurance policy can be quite overwhelming, so it’s helpful to know the difference between term and whole life insurance in order to choose the policy that best meets your needs. If you need help filing a claim, it’s best to contact a life insurance attorney.
Types of Life Insurance
Life insurance is mainly sold in two varieties: term life insurance and permanent life insurance. Term life insurance offers the lowest prices since it is only valid for a specified period. Most life insurance policies sold are term life policies. Permanent life insurance is more complex and expensive. Whole life insurance is the most well-known variety of permanent life insurance. Other varieties include universal, variable, and variable universal.
Term Life Insurance
Term life insurance offers coverage for a pre-specified period of time. This type of life insurance is designed to protect dependents in the event of your premature death. The length of the policy you buy depends on several factors. The most common terms are 10, 20, and 30-year policies. When shopping for term life insurance, your coverage benefits should be enough to help your family if you were no longer there. The payout should be able to replace your income to help your family stay on their feet.
Whole Life Insurance
Whole life insurance provides lifelong coverage, but it also includes an investment component. The policy’s cash value grows slowly and is tax-deferred, which means you don’t pay taxes on the account’s growth. You can borrow money against this type of policy or surrender it for the cash value. Premiums for whole life insurance stay the same for as long as you hold the policy. The death benefit is guaranteed, and the cash value account will grow at a guaranteed rate. Some whole life policies may also produce annual dividends. You can choose to take these or deposit them into the cash value to earn interest. Dividends are not guaranteed, however.
Additionally, as you age you can sell your whole life insurance policy for cash through a process called a life settlement.
Which Do I Need?
The type of insurance you need depends on your situation. Term life insurance is temporary and has no cash value. Term life insurance can be extended, but in most cases, you’ll receive no payout because you’ll live to the end of the term. Your premiums each month will be very low. If you’re unsure, start with a term life insurance policy that can be converted into permanent coverage. You’ll need to follow the guidelines to convert the policy, but term life insurance is a good starting point for most people.
With whole life insurance, your monthly premium will be much higher. Whole life insurance is beneficial for heirs who might have to pay estate taxes. It’s also useful if you don’t want your heirs to have to sell portions of your estate to pay taxes. Whole life insurance can also be a good option for anyone with a lifelong dependent, such as a special needs child. This type of life insurance can guarantee their care, and your attorney can help set up a trust for them with the payout. Check out bendinsurance.net for any questions you have.