Term or Whole Life?
A popular adage is “to buy term and invest the difference.” Like most simple sayings, the adage is wrong in some instances and correct in others.
Term life insurance is just what its name implies: rented coverage, with level premiums, for a defined period of time. It has no monetary value unless you die during the term period.
Advantages
- Affordable. Popular choice for young families with limited budgets.
- Works well when insuring against future expenses such as college bills.
Disadvantages
- Must be renewed at higher rates if coverage is still needed at end of initial term period.
- No cash value.
- Unsuitable if coverage is needed for your entire lifetime.
Whole life insurance (sometimes called “permanent insurance”) is designed to stay with you for your entire life. It has cash value that you can access through loans or withdrawals. (Benefits are reduced dollar-for-dollar by amounts you borrow or withdraw.)
The most popular form of whole life insurance is called “universal life.” Within limits, you can adjust your coverage and your premium payments as you go through life. Universal life can usually be funded in a single premium, over a pre-defined period of years, or over your entire lifetime.
Advantages
- Cash value that you can access throughout your life.
- Cash value growth is tax-deferred.
- No need to renew. Designed for lifetime coverage.
- Flexible coverage and premiums.
Disadvantages
- Premiums may be higher than for Term life with comparable benefits.
- Interest earnings may lag behind other conservative fixed income options. (Earnings are used to purchase your insurance coverage.)
Your decision. Your Financial Consultant or Financial Advisor will recommend the type of policy that seems most appropriate for your needs, but the final decision is yours!