TERM VS WHOLE Life Insurance

Buying life insurance provides a financial safety net for your dependents later when you are not around to take care of them. After you are gone, your family can use the proceeds to cover funeral costs, mortgage payments, college tuition and other expenses.

1. Whole life insurance will last the rest of your life, so your beneficiaries are guaranteed a payout no matter when you die.

2. Whole life insurance also builds up “cash value,” which is money you can access while you’re alive. Term life has no cash value.

Term life insurance provides coverage for a certain time period. It’s often called “pure life insurance” because it’s designed only to protect your dependents in case you die prematurely. If you have a term policy and die within the term, your beneficiaries receive the payout. The policy has no other value.

You choose the term when you buy the policy. Common terms are 10, 20 or 30 years. With most policies, the payout, called the death benefit, and the cost, or premium, may increase during the time of the term.

Like all permanent life insurance policies, whole life provides lifelong coverage and includes an investment component known as the policy’s cash value. The cash value grows slowly, tax-deferred, meaning you won’t pay taxes on its gains while they’re accumulating.

You can borrow money against the account or surrender the policy for the cash. But if you don’t repay policy loans with interest, you’ll reduce your death benefit, and if you surrender the policy, you’ll no longer have coverage.