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Term vs. Whole Life Insurance

Updated: Mar 11

In this article we will explore the differences between Term vs. Whole Life Insurance and some reason why one is better than other in certain situations. We will also discuss some similarities of the two types of policies. Nerdwallet recommend having approximately 10 times your income for insurance, but it really depends on your financial responsibilities. According to Limra, many people understand the importance of having Life insurance. Yet, so many people have no life insurance or not enough insurance. This maybe due to lack of knowledge or simply they do not know who to talk to about insurance. We would like to help with the knowledge part while anchoring ourselves as a trusted advocate for your insurance needs.


Life Insurance companies are evolving and are designing policies to be more attractive to fit consumers needs. In short, Term Insurance covers your life for a specific amount of time for example 10, 20, 30 years or while your working with a company. While Whole Life Insurance covers you for your entire life typically. Some of the similarities with Term vs. Whole Life are they both provide a death benefit for your beneficiary. You have to pay premiums to keep the policy in force either monthly, quarterly, semi-annually, or annually. They both have living benefits for you to use while your living. These benefits are called riders. This is done to make the policies more attractive and customizable for the policyholders. Some of the most popular riders may include Accelerated Death Benefits, Dependent Child Riders, and Return of Premium Rider just to name a few. There are many different type of riders an insurance company can offer. We recommend speaking to a licensed insurance agent about the different riders when presented with policy options. Both types of policies death benefit is 100% tax free.


As we mentioned earlier Term insurance covers your for a specific amount of time. Usually term policies are much cheaper than whole life because you are just paying for the cost of insurance. This means you can get larger amounts of coverage for less premium than a whole life policies. This can be very useful if you just purchased a home, have small children, have a financial obligation for a certain amount of time. You are not concerned about building any cash value. Cash value is similar to equity in a house after paying your mortgage every month. Then you would look into a term policy. Companies that offer insurance as a benefit to their employees are usually offering a term policy. You will continue to be covered as long as you are working for the company and sometimes paying the premium. Some companies actually take care of the premium up to a certain death amount. Its customary for a company to pay the premiums of their employee Life Insurance policy between 1 -3 times the employee salary. The issue with term policies is that in many cases after the mortgage is paid, after the kids are grown, after the financial obligation are handled, or you no longer work with the company you may still need insurance coverage. No one knows what life brings so at that time an individual may have health issue which can hinder them from purchasing insurance at an affordable rate or not be insurable at all. If you can not pay for a funeral out of your bank account, even if you can it is financially wise to have a policy in place during your most healthy years. This way you have the most affordable rate and will not have to worry about coverage.


This brings me to the next section Whole Life Insurance. Typically, Whole life insurance policies will cover you for your entire life. There are some cases where a Universal Life (UL), which is considered a whole life product will not. But that's another story. Those have to be designed correctly to be beneficial products. Whole life insurance is more expensive than Term Insurance. This is because you are paying the cost of insurance plus a little extra. That little extra is then placed in an account which is called a cash value account. This is an added bonus to the Whole life policy because after years of paying for your insurance you will have some cash value (equity) in your policy that you will be able to borrow from in time of need and other scenarios. We say borrow because it is very important to pay that money back because it could effect your death benefit. Whole life policies are great for guaranteeing a death benefit up to age 120. Most insurance companies use that as the cut off age as humans mainly do not live until that age. If you are fortunate enough to reach that age the insurance company will cut you a check for the face amount. That is called the endowment age. Another benefit is the cash value accumulation that we just talked about. Once you have a whole life policy you do not have to reapply for coverage you will be covered. If you get coverage while your young and healthy you can make out pretty good on cost and coverage. The con of a whole life insurance policy is they are more expensive than Term Insurance.


As you can see both have their place in the Insurance world. Insurance is the first financial leg to stand on. It's the guarantees that keeps us secure. No wonder insurance is the backbone to our economy. Make it a backbone in your financial portfolio. Vivo National is here to help you decipher what is needed and what is not. We have discussed the main components of life insurance which are the similarities. Those do not change despite the type of policy you decide to purchase. The question then relies on how long do you want to be covered and at what price point? Do you wait until your older and may have health issues or do you get it while your in your most healthy years? Assuming you'll still need insurance in your later years. Either decision you make Vivo National will be here to assist.



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