Life insurance can be very confusing. With all complex terms used by insurance providers, it can be very daunting for an average person to choose the best type of life insurance.
Deciding whether to purchase whole life or term life insurance is a personal decision that should be based on the financial needs of your beneficiaries as well as your financial goals.
Life insurance can be a very flexible and powerful financial vehicle that can meet multiple financial objectives, from providing financial security to building financial assets and leaving a legacy.
Read on to understand how to choose the best life insurance for you.
Let’s look at the 2 major life insurance policies:
Term life insurance
Term life insurance is “pure” life insurance. The policyholder pays premiums regularly. If they die while the policy is in effect, their beneficiary (or beneficiaries) receives a death benefit.
It’s very straightforward, which is the selling point for people who want a simple life insurance option.
The key definition when it comes to term life is the term – how long the policy is active. Term life policies expire after a set number of years, making them good policies for anyone who expects to build wealth over time and won’t need the financial safety net life insurance provides later in life.
Term life insurance is also relatively inexpensive. Because there aren’t any additional fees or maintenance, it’s much more affordable than whole life.
So if you’re looking for an optimum family life insurance, Term is the way to go.
Now let’s look at the other side of the coin.
Whole life insurance
Whole life insurance is a type of permanent life insurance, which stays in effect for as long as you pay the premiums. This means you never have to worry about uninsurability or losing your safety net as you get older.
Whole life is more complicated than term overall, but one definition you need to know is the cash value, which is an investment-like product coupled with the insurance policy.
Each month, a certain portion of your premium will go into a tax-deferred savings account or the cash value of the policy. (The exact amount that goes into savings is determined by your policy.) The policy’s cash value grows over time.
You can do many things with the cash value, including taking out a loan, drawing from it for retirement or funding the policy.
There’s also universal life insurance which is a type of permanent life insurance. With a universal life policy, the insured person is covered for the duration of their life as long as they pay premiums and fulfil any other requirements of their policy to maintain coverage. Like many permanent life policies, universal life insurance combines a savings component (called “cash value”) with lifelong protection. When you pass away, the policy’s death benefit is paid out to your beneficiaries.
If you’re looking for a straightforward policy that is affordable and can be cancelled without losing any value, then you should consider Term life insurance.
And, if you’re looking for a customised policy that doesn’t expire and works as a forced saving vehicle, then Whole life insurance is what you need to consider.