One of the most beautiful phenomena of life is its unpredictability. It can turn into a blissful event or a remorseful one in no time. But it is always a great idea to remain mentally and financially prepared for each one.
Hence, insurance is the perfect step towards a relaxed and comfortable life. There are many types of insurance that let you live to the fullest. It is a contract or a policy that guarantees financial protection to the victims of surmounted financial losses.
In this blog, we will focus on insurance policies and their role in our lives. We’ll discuss term insurance and whole life insurance in great detail. We shall also assess the advantages and disadvantages of each type of insurance. Lastly, we will find which of the two is a better policy.
Introduction
Indeed, insurance policies are used as a hedge against the risk of big and small financial losses that result from damage to property and life or from liability for damage or injury caused to a third party.
There is a multitude of insurance policies. And literally, anybody or any individual or a business can find an insurance company to insure them. Also, the cost of an insurance policy varies depending on a number of factors. The most common types of insurance include car insurance, health, life, homeowners, and more. Almost every individual in the United States has at least one of the insurance types. Car insurance is mandatory by law in the USA.
The core components of insurance policies are premium, policy limit, and deductible. The businesses require a special type of insurance policy that provides protection against specific types of business risks. For example, a restaurant needs an insurance policy that covers injury or damage caused due to cooking with a deep fryer. And similarly, a car driver is subjected to the risks of injury and damage during drives.
Similarly, there are some life insurance policies that aid financially to the victims of damage and injury. Mostly, these are known as term insurance and whole life insurance. Let us discuss each of them one by one in detail.
What is Term Insurance
This is a very common type of life insurance policy that provides financial coverage for a specific time period or term of years. The insured person who dies during the time period specified in the policy and the policy is active, the financial death benefit is paid.
It is much less expensive insurance during the initial phases. When compared to permanent life insurance, it is cheap and affordable. Term insurance has zero cash value. In simple words, the only value comes from the guaranteed death benefit from the policy.
Understanding Term Insurance
Term Insurance is of various kinds. Some of the policies provide level premiums for the duration of the policy. 10 years, 20 years, or 30 years of level premiums are offered. These are also called “level term” policies. A monthly typical specific cost is called the premium. Every insurance company charges the premium to the policyholders in exchange for benefits coming from the insurance policy.
Insurance organizations calculate the premiums on certain factors such as age, health, life expectancy, and more. A medical examination is carried out to review the person’s health and medical history before choosing a policy.
The insured person Who dies before the expiration of the policy, the company pays the face value of the policy. If the individual dies after the policy expiration date, there is no coverage or payout. But the policyholders can renew their insurance or extend it.
After renewal, a new monthly premium based on age and health would be paid. In this situation, the rate of premiums could become higher than before. The premium varies depending upon the age and amount of premium payout.
Types of Term Insurance
The different types of term insurance policies offered by insurance companies or outlined below. Every policy has its own benefits and drawbacks. You can pick anyone depending on your needs.
- Convertible term
In this type of life insurance, The policyholder can convert term life insurance into whole life or permanent insurance. The biggest advantage of convertible term insurance is that no medical exam or documents are required to be submitted. Neither health condition is considered before issuing this policy.
- Increasing term
Increasing term life insurance policy allows the policyholder to increase the death benefit with time. In this, the premium also increases. As a result, policyholders are allowed to pay lower premiums early on in life. This policy also prevents people from qualifying for another insurance policy at an older age. Thus, stopping to get more benefits as would be the case in traditional term insurance policy.
- Decreasing term
The decreasing term policy also called the mortgage term is the exact opposite of the increasing term. In this, the death benefit amount decreases with time. Here, the goal is to match the decline of the term benefit to the reduction of the policyholder’s outstanding mortgage. The goal here is to know that you don’t require life insurance much if you have little mortgage debt.
- Annual renewable
With every year, the term insurance is renewed and updated at a higher premium since the policyholder becomes older. There is an advantage of the annual renewable term insurance. The coverage is guaranteed to be approved every year under this policy. However, it may not be the most valuable or cost-effective for the policyholder due to an increase in cost over time.
What is Whole Life Insurance
More commonly known as traditional life insurance, which provides permanent death benefit coverage for the insured person’s life. Also, besides providing the death benefit, it offers an additional component for savings where cash value accumulates. Interest adds at a fixed rate and on a tax-deferred basis.
Indeed, a whole life insurance policy is a type of permanent life insurance policy. However, indexed universal life, universal life, variable universal life are different. In simple words, whole life insurance is an original life insurance policy that does not equal permanent life insurance since there are many types of permanent life insurance.
Understanding Whole Life Insurance
In exchange for regularly due premium payments, whole life insurance guarantees payment of a death benefit to respectable beneficiaries. It also includes a specific savings portion known as cash value along with the death benefit. Interest accumulates in the savings component. Hence, the cash value grows and is an essential component of life insurance.
To enhance the cash value, a policyholder can make more payments than the scheduled premium. It is also known as paid-up additions or PUA. Interest can be earned through cash value and policy dividends. In fact, cash value offers a living benefit to the insured person. It offers positive returns to investors. It grows larger than the total premium amount paid in the policy. It is a great source of equity.
Cash reserves can be accessed by the policyholders through withdrawal requests of funds and loans. However, interest is charged on loans with a varying rate for different insurers. In addition, policyholders can withdraw funds without taxes up to the value of total premiums paid. However, unpaid loans reduce the number of death benefits. It is a bad idea to keep the loans unpaid. It eventually reduces the cash value of the policy.
Term Insurance Versus Whole Life Insurance
Term insurance and whole life insurance are the most traditional forms of life insurance. Let us try to understand the basic differences between these two insurance policies.
Term Life Insurance
One of the easiest insurance policies to be understood is term insurance. It is very straightforward insurance without any hassles. The objective of buying a term policy is the exchange for a death benefit if the beneficiary passes away within the active period of the policy. As the name suggests, it is insurance that remains good for a certain time period. The policy simply expires after a duration of 5, 10, 20, or 30 years and so on.
Whole Life Insurance
Permanent life insurance or whole life insurance is entirely different from term insurance in two fundamental ways. Firstly, it never expires as long as the policyholder pays the premium monthly. Also, it provides cash value along with death benefit which is a source of funding for future requirements.
What Are The Pros And Cons Of Term Life Insurance
Pros
Since the term Life insurance is very simple and has a finite duration, it is the cheapest insurance policy. A policy that protects your family financially after you die, then term insurance is the best and most affordable policy. Single parents who wish to provide a better future for their kids can go for this additional safety net.
Another advantage of term insurance or that generally, it has a much lower cost than other typical life insurance policies. Definitely, it is much simpler to understand and follow than permanent insurance policies.
Cons
Of course, there are a number of drawbacks of term life insurance. One such factor is the change in premium prices. A larger death benefit means an increased rate of premiums. Also, regular medical examinations and health checkups or a must for continuing a term policy.
Eventually, the term insurance policy expires. It is possible to have found no meaning in spending on term insurance policy. Also, you cannot use the investment on a policy to save or spend on taxes. Hence, protection is only available until the policy is active. There are no additional advantages such as building wealth or planning for taxes.
What Are The Advantages And Disadvantages Of Whole Life Insurance
Pros
The whole life insurance policies are level premium. This means that a monthly amount is paid for the entire duration of the policy. These payments can be divided into two ways. One segment of the payment goes to the insurance component. The other half goes into building cash value that grows over time.
Many insurance providers offer interest rates of 1% to 2% annually. Some companies sell participating policies in which the guaranteed dividends are paid that increases the total return of the policyholder.
The initial amount of the whole life premium is higher than the cost of insurance. As the policyholder ages, this reverses. The cost becomes lesser. This means that a term policyholder of your age might be paying more premium than you.
In addition, the policyholders can borrow or withdraw the cash value amount. It is a great way to pay the kid’s college expenses or tuition or repairs at home. In this way, it is a much more financially reliant tool. Also, loans are tax-free.
Cons
Both the cash value and death benefit are integrated features of whole life insurance. When a policyholder takes a loan from the cash value, the death benefit reduces. If you don’t pay back on time, the corresponding amount will go down. For example, if you take a $100,000 loan, the beneficiaries will receive $100,000 less along with interest accumulated over time due to the unpaid loan.
The primary disadvantage of this insurance is that it is very expensive. It can be 5 to 15 times more costly than term coverage. The high cost makes it difficult for the consumers to make payments on time.
Another drawback of this insurance is the complexity. It is difficult to understand and work along with it. The whole life policy holders can face a charge of up to 10% of cash value if they stop paying premiums for the policy.
Do You Lose Money With Term Life Insurance?
Unlike permanent life insurance, term life insurance does not have any cash value component. Therefore, it does not include any investment component or segment. The policy simply lapses if you are still alive and the term ends. The beneficiaries do not receive any money or financial aid in such a situation.
Here comes the best part of term life insurance. You can easily convert it to a permanent life insurance policy. By doing so you can increase your premiums. It will provide you coverage for life. Hence, the cash value component becomes active as soon as you convert to permanent insurance.
How Many Years Do You Pay For Whole Life Insurance?
The payment period for the whole life insurance policy depends on the policyholder. Either you can choose to pay for the entire policy in a short duration such as 10 or 20 years. The premium would be high considering the duration. Some insurance companies offer higher guaranteed returns that come in exchange for higher annual premiums.
Single premium life insurance is also a type of policy that is fully funded in a single payment. In exchange, death benefits are received by the policyholder until they die. A single premium policy is a type of permanent or whole life insurance along with the cash value that grows over time and can be borrowed against.
The whole life insurance policy is designed to exist until your entire life. It does not expire. Some policies however payout at the age of a hundred. The premiums for whole life insurance are higher than the term life policy.
How Many Years Do You Pay For Term Life Insurance?
The duration of term life insurance depends on how long the policyholder wishes to protect their families financially. In case of an unfortunate event, The policy can be used to redeem the death benefit. However, the policy should remain active during the event of death. In general, the term policy offered by the companies is between five years to 40 years or up till the age of 99.
The policyholders can keep on extending their term life insurance policy. However, every time the extension is requested there would be a medical test, and health documents are submitted. The rate of premium payment depends on the policyholder’s age, health condition, and similar others.
Therefore, the term life insurance policy can last up to 10, 20, or 30 years. Some insurers provide longer and even shorter lengths between five and 40 years. However, if you cancel or outlive the duration of the term life insurance policy, no money is paid back to you. However, if you have a return of premium and you outlive the policy, money will be refunded. If you opt for a convertible term life insurance, you can sell the policy instead of nullifying or canceling it.
What’s Better: Whole life or Term insurance?
So far, we have briefly discussed the benefits and drawbacks of both types of life insurance.
Term coverage or term insurance only protects you for up to a limited number of years. On the other hand, whole life insurance provides protection of life. If you can keep up with the premium payments, then the whole life policy is a great choice. But the whole life premiums can also cost up to 5 to 15 times more than term policies. However, the death benefits for both policies are the same. Therefore, a whole life insurance policy might not be a budget-friendly choice for consumers.
Of course, the answer is yes to whether life insurance is worth it or not. Now the question arises of which type of life insurance, in particular, provides the best coverage at affordable prices. This you have to think about and take care of. You must analyze your finances and future plans before buying insurance. You must plan out your insurance depending on your requirements in the current situation and the forthcoming years. Do not go into haste and make a decision. Consult with an insurance policy expert first. Take opinions and discuss your future perspectives. Indeed, it will help you to make the correct choice.
Where To Buy The Term Life And Whole Life Insurance From?
Insurance companies are the best source to buy term life or whole life insurance policy. They have immense choices for the customers. A thorough background check is done on the policyholder before agreeing on it. You can also buy an insurance policy of your choice from any insurance firm. But always get assurance of the organization’s credibility.
One such renowned name is that of Signature Insurance Group. Exclusive life insurance policies are available for US citizens at an affordable premium cost. The reason to choose Signature Insurance Group are discussed below:
- Value
Being a policyholder at this organization, you would know your value as a person. A policyholder is not a commodity for business. But we totally understand the worth of human life. We understand the need for insurance for a common US citizen. Thus, we strive to validate the needs and offer the most appropriate and affordable plan.
- Worth
Every life insurance policy that you buy at this organization provides the debt benefit of higher worth. None of your premium or investment in the insurance plan is wasted. Considerate attention and close observation paid by the insurance group for optimum benefits.
- Reputation
Our years of experience as an insurance company have earned us market value and reputation. We strive to live up to the name and fame provided by our valuable customers. This is the main reason why we can’t compromise on the quality of insurance policy services offered.
- Customer support
Our team of experts and professionals and sure to have cordial and friendly relations with the consumers. Thorough guidance and support is offered to each policyholder at our organization. Customer satisfaction is the ultimate goal at our insurance firm.
Final Words!
In today’s time, buying term insurance or whole life insurance is just a matter of a few clicks on buttons. There are numerous choices in the market that offer a variety of customized options. But being an aware citizen and human, you must understand the needs of your family. Going for an affordable plan that guarantees the financial protection of your family is important.
If a misfortune of disability, disease, or death befalls you, there should be a number of plans that provide assistance. Having a backup plan is always appreciated more than having none at all! Therefore, term insurance or whole life insurance insure the absence of financial burden from your life.
The best advice would come from policy experts and professionals. Consult with an advisor from an insurance policy firm. Listen to what they have to say regarding the insurance policies and terms and conditions. Understand the needs that you have and what the insurance policy can offer you. Take every factor of career, health, family into consideration before jumping to conclusions. After all, reading and finding are the best practices for good decisions.