TUESDAY, JULY 21, 2015
If you listen to any of the popular financial counselors, you may get the idea that term life insurance is always preferable to whole life insurance. Conventional wisdom suggests that life insurance is not an investment, but rather a means of providing for your loved ones in the event of your passing. If you are young and in good health, you can buy a $500,000 term life policy for a fraction of the premium of a $500,000 whole life policy. Both policies will pay your beneficiaries a half-million dollars upon your demise, but only a whole life policy offers additional benefits while you are alive.
Major Differences Between Whole And Term Life Insurance
- Term life insurance is the much more affordable option if you need to buy a specific amount of coverage with a tight budget. Whether you purchase a whole life insurance or term life insurance policy, it will cost you more the older you get.
- Whole life insurance provides you with coverage for your entire life, no matter how long you may live. Term Life insurance provides coverage for only a specified period of time.
- Whole life insurance builds up cash value over time, while term life insurance has no cash value. As long as you pay your premiums, a whole life insurance policy stays in effect until your life ends. A term life insurance policy becomes worthless once the term ends.
- Both a whole life and term life insurance policy can be structured so you pay a level premium. However, with a term life policy, if the term expires while you are still alive and you still want life coverage, your new premium may be significantly higher upon renewal.
Living Benefits Come With Your Whole Life Insurance Policy
Unlike term life insurance, which provides no other benefit than a death benefit, whole life insurance has a number of attractive features that can be to your benefit while you are still alive.
- Forced Savings: Your policy builds a cash value over time. Part of each premium you pay is invested and earns interest. Your original contribution (premium allocated toward savings) and any interest earns grows tax free.
- Dividends: Most insurance companies pay an annual dividend as described in your whole life insurance policy. Generally speaking, you receive a greater dividend when your insurance company does well in any given year. You can choose to receive a dividend check or you can reinvest the proceeds to enhance the cash value of your policy.
- Borrowing: You can access your cash value at any age and for any reason without incurring any penalties or fees (depending on the details of your policy). Any money you withdraw diminishes your cash value. If you loan yourself the money and pay it back, there are no taxes or penalties on the transaction.
Selling Your Whole Life Policy
A life insurance policy is an asset just like anything else of value. Your whole life policy has a surrender value that your life insurance company will pay you if you no longer want or need the policy. If you become terminally ill or are diagnosed with a chronic illness, most policies will allow you to request and receive accelerated death benefits. Be aware that you may not get the full market value of your policy from your insurance company. You may want to consider selling an eligible policy in the secondary market for life insurance.
We'll help you select the policy that best fits your needs. Call First Insurance Group at (800) 511-2892 for more information on Somerset life insurance.
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