As we get older, buy homes, and have children, we start to become more aware of how life insurance is a fundamental part of strong financial planning.
The Insurance Barometer Study by Life Happens and LIMRA finds that a third of all U.S. households would struggle to meet living expenses if a primary financial earner passed away. Since September is Life Insurance Awareness Month, it’s an ideal time to consider whether term or whole life insurance is a good fit for you and your loved ones.
Term life insurance
Term life insurance offers coverage for a limited time. As Barbara Marquand explains, it’s generally called “pure life insurance” because it only covers your dependents in the case of your premature death. If you pass away within the term’s duration, the payout is given to your beneficiaries.
You have the power to select the range of coverage, and the typical choices are for periods of 10, 20, and 30 years. With most term policies, the beneficiary payout and cost of coverage don’t change during the coverage period.
When considering term coverage policies, take into account the following:
– Choose a range of time during which you’re paying bills throughout the length of the term so dependents aren’t left high and dry in the event of premature death.
– Make sure to purchase an amount of coverage that supports family members without your income.
– This may be a better option for you if you’re on a budget and only need coverage for a limited time.
Whole life insurance
Whole life insurance is lifelong coverage that isn’t limited by a specific duration and includes direct investment. With a whole life policy, you get guaranteed cash value that accrues over time and premiums that stay around the same cost for as long as you have coverage. You can also borrow cash value from the policy to pay for things like a child’s education or a down payment on a house.
Before committing to whole life coverage, consider the following:
– Once you’re approved for coverage, your policy can’t be canceled by the carrier as long as premiums are paid on time.
– Whole life insurance is often a strong option because payout to your beneficiaries is permanently guaranteed, but it does generally cost more.