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While most of the different types of insurance you can purchase are designed to safeguard your possessions or your livelihood, life insurance is designed to leave cash for your loved ones after your death. There are several different types of life insurance on the market, but some can be riskier than others. When what you need is more basic protection without having to worry about how the financial markets are doing, the most common options are whole life insurance and term life insurance.
Whole Life Insurance
Whole life insurance functions exactly the way you’d expect based on the name: for your whole life. Once you purchase a whole life policy, assuming you never let it lapse, your family will receive the death benefit whether you pass away next year or in 50 years. The key to keeping this policy from lapsing is to ensure you always make your premium payments on time.
While you can receive this type of life insurance coverage through your employer in many cases, it’s always a good idea to purchase your own policy. Much like homes, whole life policies can accrue a kind of equity over the years known as the cash value. In the event you lose your job or voluntarily take a job elsewhere, you would have to start a new life insurance policy from scratch since employer policies are only yours as long as you’re with the company.
The real goal of whole life insurance is to provide a cash benefit to your heirs after your death to help with funeral costs and living expenses, but having cash value in your policy has distinct advantages. Depending on the way your insurance
company sets up the policy, you may have the option to make withdrawals from the cash value of your life insurance.
Term Life Insurance
Term life insurance, unlike whole life insurance, is designed to only cover you if you should pass away during a specific period. So, if you purchase a 30-year term policy and pass away in 50 years, your family wouldn’t receive a death benefit unless you purchased a new policy. While this can seem like a bad deal on the surface, term insurance is less expensive than whole life, allowing people to afford a higher death benefit for their premiums.
Perhaps the true beauty of term life insurance – beyond its affordable cost – is that it allows people to choose their death benefit based on how much debt they might reasonably leave behind. For instance, if you purchase a $200,000 home with a 30-year mortgage, you might opt for a $200,000 30-year term life insurance policy. In this situation, you’d have the peace of mind that even if your spouse loses your income, they wouldn’t have to worry about losing the house.
Since people tend to maintain less debt as they get older, term life insurance can be an excellent complement to a whole life insurance policy. In fact, many people select a whole life policy based on the amount of cash they want to leave their family and a term policy sufficient to cover the combined total of their credit accounts.
If you’re interested in a more holistic approach to life insurance of this nature, your insurance agent should be able to help you evaluate your true needs and structure the best combinations of policies to meet them.