A life insurance has two types of insurance policies which are whole life and term life insurance plans. The two insurance policies offer different protection benefits and are hard to understand for the new consumer who wants to pick one that provides appropriate financial security to their family. The difficulty arises from the complicated insurance jargon used in the policies and the detailed and confusing rules. If you are facing the challenge, then below is an expert guide to help you make an informed personal decision.
Whole Life Insurance
A whole life insurance is a policy that covers a policyholder for life. In this insurance scheme, policyholders continue to pay a fixed premium during their lifetime and the insurance’s payout is given to the policy holder’s beneficiaries during death. One of the benefits, why people love this policy, is that the money paid into the policy appreciates. However, a policyholder may have to wait for more than 12 years for the money to accumulate an excellent value.
A policyholder can borrow or withdraw some amount from the policy. Therefore, the whole life insurance policy can serve as a savings vehicle that can help in times of financial need. When compared to term life insurance, whole life insurance has higher premiums, hence it is expensive.
In most cases, policyholders who want to enroll in this policy have to undergo a medical examination which one has to pass. However, some insurance providers can accept policyholders without a medical examination. In this case, the policyholder will have to purchase the policy at a higher cost.
Term Life Insurance
In time life insurance policy, a policyholder pays an insurance premium for a specified period. The specified time depends on the insurance provider, and it can be five, ten, fifteen, twenty or more years. The coverage ends when the policy term expires.
The policy holder’s beneficiaries receive an insurance payout if the policyholder dies within the insurance term. One can renew the insurance policy when the term expires and the policyholder wants to extend it. One can also convert it to whole life insurance policy.
Unlike the whole life insurance policy, the insurance investment amount does not accumulate value. Also, the term Life insurance policy is cheaper when compared to whole life insurance, however, it gets more expensive as one advances in age.
Most people enroll to this policy during a given stage of life, like when they have young children who need financial security. Other people obtain this insurance coverage during a period of economic uncertainty like when one is paying a mortgage.
What policy should you pick?
The decision to purchase any of the two types of life insurance policies depends on one’s financial needs and choice. According to insurance experts, Term Life insurance is best for people who want to offer short time financial security to their loved ones. Suitable candidates for the term life insurance are young people who have young children. If you are such a person, it is recommended that you take the insurance plan for 20- 30 years, a period when the insurance plan is less expensive.
The term life insurance will help your family just in case you die prematurely. It will contribute to settle your mortgage, cater for your children’s mortgage, pay other debts and offer other financial protections to your family.
The whole life insurance is suitable for people whose pension plan stops when the person dies, or those whose pension reduces when the pensioner dies. In this case, a whole life insurance policy would provide a better financial protection.
One may also buy a whole life insurance plan if he or she has an illiquid business that they want to remain in possession of their survivors when they die. A whole life plan will help your beneficiaries bay for the high tax bill that may result after you die. People who face a difficulty of saving their money can also opt to enroll in the whole life insurance as a saving vehicle.
Given the fact that most people have different financial needs, you might want to choose a life insurance policy that meets your financial needs or goals. You ought to talk to a financial advisor or an insurance expert who can help you choose an appropriate and most affordable insurance scheme.