When choosing between term life insurance and whole life insurance, you've got to consider four fundamental questions before opting for a plan. Here's how to get started on your decisions.
How long are you going to need it?
- Term life insurance has you covered for anywhere between 1 and 30 years. You may not have a need for insurance once your mortgages and other debts are paid, so get term life insurance if you've got a fixed time-frame for your life.
- Whole life insurance, on the other hand, covers you throughout your entire life, regardless of when you pass away. If you're looking to age into seniority, then the coverage from whole life insurance will definitely come in handy.
What do you want insured?
- Term life insurance protects you against time-bound incidents or payments, like your paycheck. If you're retired or have paid off all debts, then you can determine whether or not you still want to be insured.
- Whole life insurance provides benefits upon your death, regardless of the age at which you expire. This is useful in paying off estate taxes, especially for the very rich. If you've got limited assets and want to pay for your own burial, you might want to consider a whole life plan as well. Whole life insurance can also compensate for a pension plan that will have protected your partner in the event that you die. What whole life insurance can offer intangibly is that peace of mind in knowing that no matter what happens, you'll be covered as long as you pay for your premiums.
Are you going to be able to afford higher premiums?
- Term life insurance is typically a cost-efficient choice, as you end up paying just for the cost of insurance, and you won't be building any cash value. However, the chances of you dying ahead of your time are lower than you taking a slow, graceful exit from this life, and so your loved ones may not be able to fully utilize your plan's benefits.
- Higher initial premiums go hand-in-hand with whole life insurance plans, but they end up equalizing with term life insurance premiums in the long run. This is especially so if you purchase insurance after your term life insurance contract expires.
How long are you going to last?
- Again, term life insurance plans are best for when you expect that you're going to die prematurely. If you're working or living in high-risk environments, or if your family's general longevity is short, then you're going to want term life insurance, as it's cheaper than whole life insurance. In fact, most term life insurance companies won't provide coverage past the age of 75 to 80 without resorting to more expensive choices.
- If your grandfather is 102 years old, or if your family generally tends to live a full life, then whole life insurance is for you. Since the coverage applies well into your old age, you and your family will be protected as long as your premiums are being paid.