Life insurance covers your entire life, but term life covers it only for a set period.
Some life insurance policies cover you for your entire life. Others, such as term life insurance, cover you only for a set period. In general, the longer your policy lasts, the more expensive it is—so term life can be less expensive than other types of coverage. That makes it a good option for people who want to make sure their family has money if they die during a certain period—let’s say during their working years or while their children are young and would need help with college expenses.
One thing to keep in mind: With term life insurance, when that set period ends your coverage ends too. If you die after that, the beneficiaries named in your policy won’t get anything. That’s why it’s important to know how long you plan to be covered and what will happen if you outlive it—which we’ll talk about next.
Term life may be less expensive than whole life and universal life, which are meant to last throughout your lifetime.
Which one is right for you? Financial experts typically advise their clients to consider their age, debts, income and goals. Term life policies are less expensive than whole life or universal life policies, which are meant to last throughout your lifetime. But the cheaper price of term life may make it a better option if you’re young and in good health.
If you have a high salary and large expenses like a mortgage, however, you may want to opt for more comprehensive coverage that continues as long as you pay the premiums. The survivor benefit provided by these policies can help ensure your family’s long-term financial security in case of unexpected death.
At the end of the day, both types offer important benefits and protections for your family and loved ones. While term life may be less expensive than whole life and universal life, which are meant to last throughout your lifetime, it could be a great choice for those who need temporary insurance or just want peace of mind without breaking the bank.
You can use term life to supplement an existing policy or pay off a loan.
You can also use term life to supplement an existing policy or pay off a loan. Term policies are the least expensive type of life insurance, because they are for a set period of time, such as 10 or 20 years. They’re usually best for people who have young children and need their policy in place until the kids are old enough to be self-sufficient, or for those with large debts like mortgages and car loans that will be paid off after a certain number of years.
Whole and universal life policies build cash value, which you can borrow against later in life.
There are two types of life insurance that offer cash value policies: whole life and universal life. Whole life policies have a guaranteed death benefit, meaning the insurer will pay out your beneficiaries regardless of when you pass away. Universal life policies have a flexible death benefit, meaning it varies depending on the market forces at play.
Both whole and universal life build up cash value over time. The cash value is tax-deferred, which means you won’t be required to pay taxes on your money until you take it out. In fact, some policyholders choose to never take their cash value out of their policy and instead leave it to their heirs after they die.
Both types of policies allow you to borrow against your cash value or make withdrawals in certain cases (and there may be costs associated with this). But how much you can withdraw depends on the type of policy that you’re using—so active borrowers may want to consider one kind over another.
Whole-life premiums are usually fixed while universal-life premiums vary depending on the size of the cash reserve.
Whole-life premiums are usually fixed (i.e., the premium amount you pay for your whole-life insurance plan each year does not change), whereas universal-life premiums vary depending on the size of the cash reserve. The larger your cash reserve, the lower your premium will be, and vice versa. If you have a large sum of money to invest in a universal life plan, then you may save more from its lower premiums than from a whole-life policy’s fixed payments.
The other factor to consider is that premium amounts for universal-life plans can increase if the cash reserve is insufficient to meet the company’s reserve requirements. This can happen when market interest rates fall below what was projected when the plan was structured or if expenses rise above projections due to bad investment returns or if claims exceed estimates. A whole life policy will not raise its premiums regardless of what happens in the investment markets.
For simpler coverage with less investment potential, try level-term life insurance.
For simpler coverage with less investment potential, try level-term life insurance. This is a good choice for anyone who wants to cover a fixed amount of debt (such as a mortgage) that has a set end date. With level-term life insurance, your premium will stay the same throughout the term of the plan.
You’ll also have the option to purchase some level-term policies with coverage that can be renewed at the end of your term, usually at an increased rate (based on your age when you renew).
There are several types of life insurance plans available to choose from
There are several types of life insurance plans available to choose from. Whole life insurance, term life insurance and universal life insurance are the most common.
A whole life policy includes a level-premium, which means the insured pays a set amount for the remainder of their lifetime. Term life offers coverage over a predetermined period until it expires or you renew it. Universal policies combine features of both whole and term with an additional cash value provision that can be invested in funds for growth. A universal policy has the flexibility to increase or decrease coverage without replacing the policy. The benefit is that you only pay for what you need, when you need it — unlike a whole or term life plan where premiums are higher and fixed throughout your lifetime (or until renewal).