Life insurance provides financial protection to your loved ones in the event of your untimely demise. The two most common kinds of life insurance policies are term and permanent life insurance. Under permanent life insurance, whole life insurance is commonly chosen. Here’s the difference between term and whole life insurance.
Term Life Insurance
Term Life Insurance is considered a smart financial choice because it provides strong financial protection to your loved ones, and costs much less than a whole life insurance policy.
Term life insurance lasts for a specified term, which can be anywhere between 1 and 30 years. Most people choose a 20-year term.
To take out a term life insurance policy, you’ll list out the beneficiaries, like your spouse or children. Upon your death, the listed beneficiaries will receive the death benefit provided by the insurance policy if your death meets the specified requirements. For example, suicide leads to the cancellation of the payout.
Your policy ends when the term comes to an end unless you get it extended. The premium generally stays the same during the term of the policy. The amount you pay for the policy depends on factors like your health, age, the policy’s duration, and the amount of coverage you want.
Whole Life Insurance
Whole Life Insurance provides the same benefits a term life insurance policy does, in addition to an investment component called cash value.
A part of every payment you make for the policy goes towards increasing the cash value on a tax-deferred basis. It means you don’t have to pay any taxes for this investment. You can borrow the amount against your life insurance or give up the cash value to get the accumulated amount in the form of cash. Remember, you have to repay the loan you take against life insurance, with interest.
Whole life insurance does not expire and lasts for your entire life. Irrespective of when you die, your policy will give the listed beneficiaries the death benefits, provided your death meets the specified requirements. The premium will not change until you die or cancel the policy.
If you want to provide financial protection to your loved ones until they become financially independent, choose a term life insurance policy. If you have a loved one who’ll be dependent on you for your entire life, opt for a whole life insurance policy.
