Not sure whether to take out a term or whole of life insurance cover? You’re not alone! Nearly every life insurance shopper faces this dilemma, but luckily both are great options; you only need to know your needs to make the right decision.
Before anything else, we recommend you ask yourself the following questions:
What Are My Intentions For Taking Out Life Insurance?
If you have long-term financial plans like funding a trust or an estate, go for the whole of life insurance. But if you intend to cover final and family expenses, term life will serve you better.
How Long Do I Need The Coverage?
If you need life insurance for a definite period, say until retirement, go for term life. But if you need permanent coverage, the whole of life insurance is the one for you.
What’s My Budget For Life Insurance?
If you have a restricted budget, the term life cover is cheaper and therefore more suitable for you.
What Are My Assets, Debts, And Estates Worth?
Take a whole of life policy if your estates are likely to be subjected to taxation once you pass away. It will help to relieve the burden from your family.
Can I Afford The Cost Of Insurance After Retirement?
Purchasing a policy like the whole of life requires that you’re properly prepared financially. Essentially, you should set aside funds to pay up the premiums even after you’ve retired from your job given that it’s a long-term commitment.
Having provided you with an overview of the crucial factors to consider when choosing between whole of life and level term insurance policies, let’s now delve a little deeper into understanding how each works.
What Is Term Life Insurance?
The term life policy is designed to guarantee financial protection for a definite period, say 10, 20, or 30 years. The cover is very straightforward; if you pass away while the contract is still in effect, your beneficiaries receive an agreed-upon payout.
The policy is relatively more affordable than other life insurance covers, but becomes more costly with age. For instance, if you purchase it in your 60’s or 70’s, you’ll pay more in premiums.
What Is The Whole Of Life Insurance?
A whole of life policy doesn’t come with any coverage duration limitations; as long as you continue paying full premiums without default, the carrier offers financial protection until you breathe your last. Generally, it’s a more expensive option compared to term life as you have a guaranteed payout as long as you keep paying your premiums.
In essence, a whole of life cover works as a savings drive meant to benefit your family after you’ve passed on. It offers financial protection for everyday upkeep, funeral costs, inheritance tax, and many more.
Most carriers provide whole of life protection for individuals aged between 18 and 84 years. But the sooner you set up the policy, the better; it may be more challenging to find an affordable policy at advanced ages.
Term vs. Whole Of Life Insurance: How Do They Compare?
As for the payouts, the whole of life guarantees that your dependents will collect the sum assured if you pay your premiums as agreed. On the other hand, term life pays out if you pass away within the specified policy term.
Put otherwise, for the term policy, there are no payouts given if the insured outlives the contract term. As for the whole of life, death benefits are assured provided the insured keeps paying premiums.
We already mentioned that the whole of life is more expensive than term life insurance. But how do you determine the prices for each?
The cost of a whole of life policy normally depends on how long you’re likely to live, which is calculated based on your health and lifestyle questions. As for term life, the cost is normally calculated based on the value of the policy, age, gender, and health. If a medical exam is required, the report also influences the cost of insurance.
The premium amounts may always vary depending on the type of term life insurance policy you purchase. For example, if you settle for a level term life policy, you will be charged the same monthly premium rate, no matter how long the policy lasts.
Most insurance providers offer flexible payment plans ranging from monthly, quarterly, semi-annual, and annual.
Better still, if you don’t want to stress yourself with regular bills, some carriers allow you to shorten the schedules by making large payments at one-go.
Overall, all the two forms of life insurance policies are beneficial in their own capacity. The decision to choose one over the other mainly depends on your life goals and budget.
Which between term and whole of life insurance best suits your needs? Please share your thoughts below.