Pick Life Insurance Based on Your Situation

If you asked several financial experts whether term or whole life insurance was better, you would get a variety of different answers. Some prefer term life insurance, while others believe that whole life insurance is better. The truth is, the life insurance that you choose depends on your situation. Understanding the differences will help you decide which is better for your circumstances. You might even find that a mixture of both would fit you best.

What is Whole Life Insurance?

Whole life insurance is designed to be carried for your whole life. Your premiums will never change, and your policy can never be cancelled except for non-payment. In addition, your policy will accrue a cash value that you can borrow against. If you decide that you no longer need life insurance in the future, you can cash in the policy and receive the cash value. If you plan on carrying your life insurance policy for your entire life, whole life insurance is the way to go. Term life insurance initially costs less; however, the premiums increase at the end of the term, and you may find out that you are uninsurable. Holding a whole life insurance policy guarantees that your premiums will remain affordable and you will remain insured.

What is Term Life Insurance?

Term life insurance expires at the end of the term. Terms can last up to thirty years. The longer the term you sign up for, the higher the premium. At the end of the term, you will have to re-insure yourself if you plan on remaining insured. This usually involves taking another medical exam. If you health has deteriorated during the duration of the term, you might discover that you are no longer insurable. Term policies also do not accrue a cash value.

So why would someone even want a term life insurance policy? Term life insurance policies are generally less expensive. Some people choose to take the difference and invest it. If you live below your means and are saving up a large nest egg, you may not find that you need insurance at the end of a thirty year term. Additionally, a person's insurance needs change as they get older. When someone is younger, dependents might need life insurance money to live off of. When children are out of college, the need for life insurance is less (although the surviving spouse will usually still need protection).

Which is Best for You?

To decide whether to purchase whole or term life insurance, figure out how long you will need to have life insurance for. Are you a disciplined investor? Will you have enough investment money built up within thirty years to make up for your insurance needs? In this case, a thirty year term insurance policy might be more economical. However, if you are not a disciplined investor, whole life insurance is probably your better bet. The continued insurability, guaranteed premiums, and cash value that you can borrow against provide an advantage to you that term insurance cannot beat.