If you’ve ever shopped for life insurance, you most likely heard these two terms: “term insurance” and “whole life insurance.” But do you know the difference between these two products and how to determine which one is best suited for you and your family?
Understanding the importance of having a life insurance policy, and knowing how to choose the best product for your particular situation, is critical. So here is your “Life Insurance 101”:
Term Life Insurance
– Your benefits and your premium cost are fixed for a specific term: 5,10,15,20 or even 30 years.
– The premium cost of term life policy can be 10 X cheaper than the whole life insurance policy.
– The younger and healthier you are, the lower your monthly premium will be.
– Smoking and alcohol use will drive your premium up. So will other health issues.
– You will (in most cases) have to go through a physical exam in order to purchase your term life policy.
– Whatever price you receive in your initial quote will most likely change after completing your physical.
– Once your term life policy is up, you’ll have to purchase another term policy if you want to continue with the coverage. Purchasing a new policy will mean new rates.
Whole Life Insurance
– Your benefits and your premium cost are fixed for the duration of your life.
– The premium cost for a whole life policy is significantly higher (even up to 10X the cost of a term life policy).
– Your policy carries certain “cash” value which you can use to cash out or borrow against.
– Because of the high premium cost, you may be overpaying for a product you don’t really need.
– Whole life insurance is often sold as an”investment”, but in reality, the expenses will most likely eat up any interest earned. So be careful about buying a whole life policy based on the “investment” factor.
– Agents receive a much higher sales commision on a whole life insurance versus the term life insurance.
For most of us, term life policy will be a much better option. Depending on your age, health, coverage amount and the term you choose, your premium can run as low as $20 – $30 a month.
If you’re just starting your search, you can check out a few sites like selectquote or intelliquote. You can also use your personal network of friends or your current car insurance provider to see if they can connect you with a life insurance agent. You may get a multi policy discount if you insure your house, car, home and a life policy under one provider.
If your budget is a concern and you think you can’t afford to pay for a life insurance policy, here is a great post we wrote some time ago to help you find room in your monthly budget for a lifeinsurance policy premium.