Never Miss a Freedom Insurance Financial Post

Subscribe to our newsletter to get the latest in insurance & financial news

Whole Life Insurance

It’s that time. You’re trying to find a life insurance policy that’s going to protect your loved ones in the event that something happens.

But, like most consumers, you’re lost and confused. These days, it seems like insurance is getting unnecessarily complicated. There are so many phrases and words thrown around.

If you’re feeling frustrated, you’re not the only one. Consumers just like you are confused by insurance claims every single day.

That’s why we’re here.

We’re going to break down the top two kinds of life insurance: term life insurance and whole life insurance. Just keep reading if you want a simpler explanation of the kinds of life insurance.

What Is Term Life Insurance?

Term life insurance refers to insurance policies that last for a specific amount of time. It may be five years, ten years, twenty years, or longer. But, once it expires, the policy is over.

Term life insurance is basic. There aren’t any special considerations or specifications.

Often, this kind of life insurance is considered “stripped-down” insurance.

Pros of Term Life Insurance

The biggest benefits of term life insurance are that it’s simple and finite. Because of these two qualities, term life insurance also tends to be cheaper than other kinds of insurance.

The finite nature of the insurance helps create a safety net for children with single parents. These finite limits last until the child reaches adulthood. So, during that time, the parent(s) can feel better about protecting their child in case something were to happen.

If you can no longer afford the policy or no longer need it, you can stop paying at any time. So, these plans are extremely flexible.

If the only goal you have is to protect your family in the event of your death, term life insurance is the best choice if you’re able to afford it.

Cons of Term Life Insurance

Depending on the price that you’re paying, you’re going to have a different experience. If you want a larger death benefit or a longer length of coverage, you’re going to have higher insurance premiums.

In addition, most of these insurance plans require a medical examination. If you have existing medical conditions, they could increase your premiums.

Unfortunately, term life insurance does eventually expire. Once the expiration date comes, your policy is over and you won’t get your money back. You will have spent all of that money for the peace of mind only.

And, the money that you invest into your term life insurance can’t be used for wealth-building or tax-planning reasons. 

What Is Whole Life Insurance?

Whole life insurance is a type of permanent life insurance. As long as you keep paying your premiums, the insurance won’t expire.

While you’re making payments, your insurance plan will provide some additional cash value. This chunk of cash can be a source of funds for future needs outside of the death benefit. 

Pros of Whole Life Insurance

Most whole life insurance plans are known as “level premium” plans. This refers to the fact that you’ll pay the same monthly rate throughout the entire duration of the policy.

The money that you pay towards the insurance policy goes towards two amounts:

  1. Your insurance
  2. Your cash value

Because of the cash value portion, your money has a chance to grow as you’re investing in insurance. Usually, there is a guaranteed interest rate between one and two percent. Some companies also sell participating politics that may pay dividends to help you grow your wealth even more.

Later, you can withdraw money from your cash value amount so that you can put it towards any expenses you may have. This gives you some flexibility when it comes to budgeting. 

Your cash value amount is tax-deferred, and any loans from your policy are tax-free. However, you’re going to have to pay income tax on any investment gains that you may get from your cash value withdraws.

When you first start paying for the insurance, your premium cost is going to be more than the cost of the insurance. However, that will reverse as you further yourself in the insurance policy. This process is known as “front-loading” and it can help you save a lot of money on the backend of your insurance policy.

Cons of Whole Life Insurance

The death benefit and cash value amounts aren’t completely separated. If you take a loan from your insurance policy and don’t pay it back, your death benefit is going to decrease by the appropriate amount.

In comparison to a term life insurance policy, a whole life insurance policy is more expensive. However, if you can keep up with the high payments, the additional benefits are worth the extra money.

In addition, whole life insurance is also more complex than term life insurance. You can’t stop making payments whenever you want to. The plan is life-long.

If you do want to walk away from your policy, your carrier may require that you pay up to 10% of your cash value charge.

If you’re going to invest in a whole life insurance plan, you need to be sure about it. You can’t enter into this kind of insurance plan without knowing that this is the policy you want.

You could pay the charge to walk away, but this money can add up. Plus, you would have paid all of the other money for nothing but a peace of mind.

Get the Right Life Insurance for You

In the battle of term vs whole life insurance, which one is right for you? Are you looking for a short-term solution like term life insurance? Or, are you looking for something to protect your family across the lifespan like whole life insurance?

No matter which one you choose, our team at Freedom Insurance Financial can help you find a life insurance plan. We can find the perfect insurance to protect you and your family.

Once you’re ready to get started, you can contact our team to get a quote for your life insurance plan.

You may also like

The Benefits of Health Insurance: Prioritizing Your Wellbeing

The Benefits of Health Insurance: Prioritizing Your Wellbeing

Preparing for Unexpected Expenses: The Importance of Emergency Funds

Preparing for Unexpected Expenses: The Importance of Emergency Funds