Does anyone depend on you financially? What would happen to your dependents if you were suddenly gone? Life insurance is a risk management tool – a way to manage the risk of your untimely death with financial protection for your family and loved ones. Think about the peace of mind that the right life insurance policy can give you.
There are two basic types of life insurance: term and permanent. Term life insurance is most affordable and, to some, is the easiest to understand. Whole life is the most well-known and simplest form of permanent life insurance. Whole life costs more than term but offers additional benefits.
Whole Life Insurance
Whole life provides lifelong coverage and includes an investment component known as the policy’s cash value. The cash value grows slowly at a guaranteed rate, and the gains in value are tax-deferred. You can borrow money against the account, but you will have to repay the loan with interest. If you choose to surrender the policy for the cash, you will no longer have any coverage. You pay the same premium for as long as you live, and the death benefit is guaranteed.
Term Life Insurance
Term life is sufficient for most families who need life insurance. A term policy offers protection for a predetermined period of time. Although term plans are more affordable than permanent insurance like whole life policies, they do not accumulate a cash value.
Term vs. Whole Life Insurance
Term life insurance is usually the choice of people who:
- Need life insurance only to cover a certain period, such as the years you’re raising children or paying off your mortgage.
- Want the most affordable coverage.
- Prefer permanent life insurance but can't afford it now. Most term life policies are convertible to permanent coverage. The deadline for conversion varies by plan.
Whole life, or permanent insurance, is a choice for people who want lifelong coverage. For example:
- They want a life insurance payout to provide money for their heirs to pay estate taxes.
- They have a child with special needs who will be a lifelong dependent. Life insurance can fund a special needs trust to provide care for your child after you're gone.
- They plan to spend their retirement savings but want to leave money for final expenses, such as funeral costs.
Before you make a decision, ask your financial advisor to help you evaluate your individual situation. It is important to determine the nature of your needs – your dependents, for example, - your current financial position, and the coverage you can afford.
Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.