Many years ago, shopping for insurance was so time-consuming. It usually meant checking the phonebook and calling and meeting agents. Thanks to technology, however, things are so much easier nowadays.
Asking which type of life insurance policy is better is nothiing like comparing apples to oranges. In fact it's a bit more like asking if its’ better to rent or buy your home. It depends mainly on your individual needs, financial goals, and affordability. Many people want to purchase their home but for lack of good credit or enough savings decide to wait, hoping their credit improves or they save enough money for a larger down payment. Purchasing a life insurance policy is somewhat similar. Just as many individuals start out by renting and later purchase a home, you may need to start out with a Term Policy and then convert or purchase a Whole Life policy in the future. To help you determine which one you start with, answer the following questions with true or false:
If most of your responses are “False” you should consider “Term Life Insurance.”
If most of your responses are “True” you should consider “Permanent Life Insurance.”
Term Life Insurance provides coverage for a certain amount of years. It helps protect your dependents if you die prematurely during the term which can range from 1 to 30 years and usually has no other value. Term policy should coincide with the years your family would be most financially vulnerable if you were no longer there to provide for them financially. The payout should replace your income and help your family maintain their current standard of living. Ideally the life insurance should end around the time your kids are on their own, you paid off your house, and you have plenty of money in savings to serve as a financial safety net. If you don’t have enough money in your savings to pay off the mortgage and your family’s daily living expenses, at least until the youngest child is an adult and can fend for himself, Term is probably the best fit.
Whole Life Insurance provides lifelong coverage for the insured as long as premium payments are being made when due. It includes an investment component known as cash value. It usually grows slowly, but it grows tax-deferred, meaning that you won’t pay taxes on any gains. You can borrow a certain percentage against the policy’s cash value but if you don’t repay the policy loan with interest, your death benefit will be reduced. You can also cancel the policy and keep the policy’s cash value minus any surrender charges, but you’ll no longer have coverage. The premium remain level for the entire length of the policy, the death benefit is guaranteed, and the cash value account grows at a guaranteed rate. If you have a high net worth and plenty of savings but don’t want your beneficiaries to tap into any of your savings to pay for your final expenses or any potential estate taxes a Whole Life Insurance policy should be considered.