Last Updated on September 17, 2020 by Andrew Lee
The right type of life insurance depends on your personal situation. As a shopper, there are quite a number of factors you should take into careful consideration when deciding whether to get a term or whole life. Note though that in almost all parts of the United States, whether Georgia, Mississippi, Pennsylvania, or any other state, term policies are the more popular.
It’s important though that you don’t decide based on popularity, but rather on your specific needs. To help you make the right choice, here is a guide on what makes this specific type of life insurance the most fitting choice for you and your family.
Term Insurance 101
First things first: have a basic understanding of how term life cover works.
As you shop around for life insurance in your earlier years, you’ll notice that term policies come with lower premiums than the whole life coverage plans. This is actually one of the reasons many people in the country opt for it. Note though that the lower cost is primarily due to term not having a “cash value” component, unlike whole life.
With this type of cover, your family will receive a death benefit that your insurer will payout in the event your passing takes place within the covered “term,” as NerdWallet explains. You just have to decide on two things: the amount of policy value and the length of time you want it to provide you with insurance.
Term policies are straightforward: pay the premiums, and you remain insured. Allow it to lapse, and the insurance company will no longer pay out the death benefit. But because it’s cheaper, you most likely won’t have difficulties making payments towards it.
For as low as $20 (or even cheaper) a month, you can already have life coverage, as long as you’re relatively healthy at your 20s or 30s and don’t smoke. This goes for both males and females, regardless of location.
Not everyone can afford the higher premiums associated with whole life policies, so if you’re one of these individuals, a term policy will suit you better, the Insurance Information Institute advises. Singles and people with smaller families will find this a good option too since they don’t have that many beneficiaries to think about.
Investments and assets
One of your primary priorities is to ensure your family remains financially stable even when you’re gone. Both term and whole life insurance can help with this. But how do you choose between the two?
You can go with the former if you have other investments and assets. For instance, you own real estate properties, you have considerable liquefiable personal properties and savings accounts, and you have set up stocks and other investment vehicles. If this is the case, then the death benefit that a term policy pays out, combined with all these other assets you have, may already be enough to provide your loved ones with financial protection even after you’re no longer with them.
Specific time frame
Another situation wherein term life may suit you better is if you have a specific time frame for when you need life coverage. Because you can choose from a wide array of available terms, you can match your needs with the policy’s term. For instance, you want to make sure your kids will have the funds to go to college; then you may want to purchase a 20-year term policy.
These are just some situations wherein a term policy may fit your requirements better than the whole life option. If you foresee your needs changing in several years though, ask potential insurers if they offer convertible term plans.