Widening your perspective on how life insurance works will help you understand the difference between term and whole life insurance. Most of the time people find it easier to start our with term, however in some instances, permanent coverage may be the best option.
Term life insurance is easy and great for first time buyers
Term life insurance is a policy that is set for a specific time-frame. Most term policies have a term of 10, 15, 20, or 30 years. At the point when the specified time is up, the protection is no longer valid. Term insurance is the easiest and most cost effective option for most families.
The drawback of term insurance is that if the policy is purchased for 20 years and the insured dies 21 years later, the policy will not pay out, despite the fact that the premiums were made. The advantage of going this route to start off with, is that many companies will allow you to convert a term life insurance policy to a permanent or whole life insurance policy as your needs change.
Permanent Life insurance offers the added benefit of savings
Permanent life insurance is an insurance policy that stays active until the insurer passes away, so it lasts the entire life of the person who is insured. Permanent life coverage typically costs more than term options, but they are usually also more flexible and offer additional perks and benefits. The most significant advantage of choosing a whole life option is that it accumulates cash value over time and it can count as an extra savings or investment account.
The interest and added financial protection usually makes it a more attractive choice for those who are comfortable with starting at a higher premium. Another plus is that whole life insurance policies always pay out the benefit, so if the policy has been in force for 10 years of 40 years, it doesn’t make a difference, the death benefit is paid out to the beneficiary when the insured person dies.