Nobody ever wants to think about buying life insurance. But there are certain times in life when it makes sense to take stock of your financial future and carefully consider how to help protect the people you love. If you’re thinking about buying a home, or starting a family, life insurance can help prepare you and your family for the unexpected.
Once you’ve made the decision to buy life insurance, you’ll probably have questions, like: What kinds of life insurance policies are there? What makes them different? And how do you choose the right one? We’ll help add some clarity so you can make an important decision with confidence.
Term Life Insurance
Term life insurance provides coverage for a specified period of time, generally terms of five to thirty years. Our most common policies are a 20-year term. Here’s how it works: if you pass away within the 20-year term of that active policy (meaning that you have not allowed the policy to lapse), then your family, or designated recipients, will receive the full value of the policy.
What are the benefits to a term life policy? First, your premiums will never increase during your policy term. That means you’ll have predictable payments for the timeframe you’re covered, which helps with your family budget plans. Also, term life policies are generally more affordable than whole life policies—at least when you’re young and in relatively good health.
Are there any drawbacks to a term life policy? Well, for one, it only has value during the time in which you’re paying for it. Once your term ends, the policy loses its value. Also, if you decide to extend the coverage term, say if you have a baby later in life, it will cost more for the additional term than what you paid for your original term. Your rates aren’t locked in for life.
Whole Life Insurance
This type of coverage is sometimes called permanent life insurance. When you buy a whole life policy, you lock in the rates for the life of the policy. This means that you’ll pay the same rate for as long as you continue paying for your policy and do not allow it to lapse. If you’re young and in good health, you’ll typically have lower insurance rates.
In addition to locking in lower rates for life, a whole life policy builds cash value over time. This makes your whole life policy both an investment and insurance policy.
How does the cost compare to a term life policy? The initial premiums for a whole life policy are often greater. However, keep in mind that your rates are locked in for life, unlike a term life policy. So, a whole life policy can give you more control over long-term costs and financial planning.
Choosing Between the Two
Each type of policy has its own strengths and weaknesses. A whole life policy, locked in early, ensures that you’ll always have life insurance coverage at the same cost. Term life policies allow you to add extra protection at times when you need it most, but the cost can go up later on in life.
Which one is right for you? It really all depends on your unique, personal circumstances. Some people choose to have both: permanent whole life coverage and an additional term policy for more security during certain critical years, like while raising a family or through the years of paying your mortgage. If you’re still not sure what policy is right for you, we can help. Make an appointment today to speak with one of the knowledgeable insurance representatives at Liberty Bank. Your financial security and peace of mind is important to us.