If the distinction between term and permanent life insurance, such as whole life, is hazy to you, you are not alone. While most people understand that life insurance pays a lump sum to their survivors if they die, they might be unable to grasp the nuances and advantages of term life insurance vs. whole life insurance. However, if you want to secure your family’s financial future, you should understand the fundamentals of these two choices.

What exactly is term life insurance?

A term life insurance policy is exactly as it sounds like: It is a programme that offers coverage for a certain number of years, usually between 10 and 30. It is also referred to as “pure life insurance” because, unlike entire life insurance, there is no cash value aspect to the policy – it is intended solely to pay out to the beneficiaries if you die during the period.

If you purchase a term policy to cover your family, consider whether your family’s need for life insurance will change before the term expires. how does term life insurance work, In most families, this ensures that the children are grown and on their own, the house is paid off, and there is some money set aside as a safety net for the surviving partner.

What exactly is entire life insurance?

A whole life policy is the most basic form of permanent life insurance, so called because it offers coverage for the rest of your life as long as you pay your premiums. It is not a “pure life insurance” plan, unlike word, since it contains a cash value part. A policy has cash value as a part of your premium dollars are invested and this balance rises tax-deferred over time, so you don’t pay taxes on the gains.

The cash value of a policy offers a range of incentives that you can use when you are still alive. It takes a few years for the cash value of your policy to develop into a useful sum, but once it does, you can borrow money against it in the form of loans or withdrawals1, use it to pay your premiums, or even surrender it for cash to supplement you in retirement.

Although there are other forms of permanent life insurance, whole life insurance is the most straightforward:

  • The premium is fixed for life.
  • The death profit is assured.
  • The cash value increases at a fixed rate.

It is worth noting that for certain firms, such as Guardian, whole life plans will also receive annual dividends (a portion of the insurer’s profits), which will raise the cash value and offer additional benefits. Despite the fact that dividends are not assured, Guardian has paid dividends to participating individual life policyholders every year since 18682.

What are the advantages and disadvantages of term life insurance versus entire life insurance?

The primary distinction between the two plans is that, while both pay a death benefit to your beneficiaries, whole life also offers permanent (lifelong) coverage with a cash value portion. Because of this added advantage, as well as the certainty that the insurer will ultimately have to pay a death payout, the premium for a whole life policy is higher than for a term policy.

What to think about before purchasing a whole or term life insurance policy

Every individual is special, and the decision to purchase a whole policy vs. a term policy should be driven by your particular life situation and the things that are important to you, including (but not limited to) the following:

  • What age are you?
  • What is the state of your health?
  • What are your family’s financial requirements?
  • What are your children’s ages?
  • Are you worried about the cost of long-term health care and serious illness?
  • How much do you owe on your mortgage and other debts?
  • What are your retirement plans?
  • What are your intentions for your children’s college education?
  • How would you cover funeral costs?
  • Do you have concerns about estate planning and tax implications?
  • Are you including a confidence in your will?
  • Do you want to donate a portion of your estate to charity?
  • Do you still have life insurance, possibly through your employer?

Because, while the cost difference between a term policy and a whole life policy can seem to be significant at first, when you consider all of the advantages that a whole life policy will offer over the course of your life – and the certainty of an eventual payout – you can believe it is a better overall value.

How much would each type of insurance cost me?

Many variables relate to the cost of a life insurance policy, some of which you have little power over, while others you do. You will better understand your choices when deciding what is best for you and your family if you understand what influences your premiums before you get a life insurance policy quote.

The cost is determined by your policy form (term or permanent), age, fitness, gender, driving record, occupation, hobbies, and the sum your loved ones will get.

What if you already have one form of policy and want a different one?

We’ve discussed the various choices and features that a whole life policy offers over a term policy, as well as how a term policy can be a more cost-effective way to buy a specified amount of death benefit. However, regardless of the form of policy you have, you can be able to obtain the benefits of the other type. How so?

  • You will be able to convert your term insurance policy to a whole life policy. Most firms (but not all) allow for this, and it can be an excellent way to continue your life insurance policy while still building cash value that you can borrow from.
  • You may also purchase a term policy to complement your whole-life insurance policy. For example, if you believe you need an extra layer of insurance to help pay for your children’s college when your entire life strategy is accruing cash value.

After all is said and done, which form of insurance policy should I purchase?

The reality is that, in addition to the form of policy you obtain, there are several factors to consider. How much protection do you require? What are the various policy choices (or riders)? Is there anything else I need to protect my family?

Here’s a quick way to get answers to all of your questions: Simply contact Guardian to find a financial advisor who can take the time to learn about your specific situation, listen to your concerns, and clearly describe the various insurance choices that best suit your needs and budget – from a company that has been protecting families for over 150 years.

If you are an employee, taking advantage of your employer’s benefits is a wise and cost-effective way to get the financial security you need for yourself and your family. Contact the human resources department to go over your coverage specifics to decide how much life insurance you have available to you. Life insurance may be provided as a perk by your employer, or you may choose to pay for extra life insurance by payroll deductions.

Frequently Asked Questions about Term Life Insurance vs. Entire Life Insurance

Is whole life insurance preferable to term life insurance?

When compared to a term life policy, whole life has many advantages: it is permanent, it has a cash value investment aspect, and it offers more ways to secure your family’s finances in the long run. These benefits make it a better choice for many people – but if you’re only looking for the highest death benefit per dollar paid in premiums, term life insurance might be a better option.

Is it worthwhile to purchase entire life insurance?

That depends on your life situation and priorities, just like any other financial services product. If you want life insurance coverage that will last your whole life, a whole life policy from a reputable insurer is an excellent option. It can also be a worthwhile investment for older people who are worried about estate planning and mitigating tax consequences for their heirs.

What happens when a term life insurance policy expires?

In general, when a term life policy’s term (or effective period) expires, you must either purchase another policy (at a higher cost) or go without life insurance. One exception: If you have a term policy with a fixed renewal clause, you will be able to renew on a year-by-year basis at a much higher rate at the end of your term. Although it is costly, it could be worthwhile if your health has deteriorated or if you are otherwise uninsurable.

Is entire life and term life insurance taxable?

In general, the payout from a life insurance policy after the death of the insured is not taxable, so please contact your tax advisor for more information on tax benefits.

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