Term vs. whole life insurance: Why you might want both
When it comes to life insurance, there are two main types of policies: term life insurance and whole life insurance. Both help provide financial protection for your loved ones in the event of your death, but they differ in a few key ways. Let’s explore the benefits of term and whole life insurance to help you determine which policy might be right for you.
Term Life Insurance
Term life insurance provides coverage for a specified period, typically 10, 20 or 30 years as long as you continue to pay premiums. If you die during the policy term, your beneficiaries will receive a payout from the insurance company. If you outlive the policy term, the policy will expire, and you will not receive any benefits.
A key advantage of term life insurance is that it is typically cheaper than whole life insurance. This is because term life insurance does not include any cash value or investment component, making it a straightforward and cost-effective way to provide financial protection for your loved ones. Additionally, term life insurance can be a good choice if you need coverage for only a specific period, such as until your children are grown or your mortgage is paid off.
Whole Life Insurance
Whole life insurance covers your entire life as long as you continue to pay your premiums. In addition to the death benefit, whole life insurance includes a cash value component that grows over time. This cash value can be borrowed against or used to pay your premiums.
One of the most significant benefits of whole life insurance is that it provides lifelong coverage and can be an important asset in your estate planning. Additionally, the cash value component of whole life insurance can provide a source of savings or investment for your future financial needs.
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Why both?
So, why would someone want both term and whole life insurance? Depending on your financial situation and your long-term goals, it may make sense to have both. For example, you may want to have a term life insurance policy to help provide coverage during your working years when your income is needed to support your family. You could then supplement this coverage with a whole life insurance policy to provide lifelong financial protection and a source of savings or investment.
Here's an example:
Let's say a 50-year-old individual named John has a mortgage that he still owes, and he also wants to help ensure that his spouse is provided for in the event of his death. He might purchase a 20-year term life insurance policy to cover the remaining balance on his mortgage and provide a benefit amount for his spouse.
However, John also wants to leave a legacy for his children and grandchildren and help ensure that his final expenses are covered. In this case, he might also choose to purchase a whole life insurance policy with a death benefit that will never expire. This policy can also accumulate cash value over time, which John can use to fund his retirement or pay for long-term care expenses.
Having term and whole life insurance, John could help ensure that his temporary and permanent needs are covered. This will help bring John peace of mind, knowing that his loved ones will have protection in the event of his death.
Ultimately, term and whole life insurance will depend on your individual needs and goals. It's important to carefully consider your financial situation and consult with a financial advisor or insurance professional to determine which policy is right for you.
This blog is up to date as of February 2024 and has not been updated for changes in the law, administration or current events.
