Whole Life Vs Term Life
As you begin to research your life insurance options, youll most likely come across the two main types of life insurance: term vs whole life insurance. Here are their basic definitions:
Term life insurance: This is insurance you buy to cover a specific term, such as 10 or 20 years. These policies do not accumulate cash value. Premiums tend to be lower because of the likelihood that you will outlive the policy. When the policy expires, you must buy another term and pay higher premiums if you still wish to have life insurance.
Whole life insurance:What is whole life insurance policies biggest benefit over term? This is insurance you buy for the length of your life. Unlike term insurance, whole life policies dont expire. The policy will stay in effect until you pass or until it is canceled. The initial cost of premiums is higher than it is with term insurance because of the length of the policy. However, part of the premiums you pay builds up into cash value, which you can use later in life. With whole life insurance, the policy you buy at age 40 remains with you. Whole life insurance is often referred to as permanent insurance.
Heres a chart showing the key differences between the two types of policy.
Whole Life Insurance
Lower premiums when youre
young but they increase as you age
What Are The Available Term Periods
How long does term life insurance last? You can buy term life insurance for term periods of 10, 15, 20, 25, or 30 years. As I mentioned earlier, most modern term life policies do not technically expire until age 95, regardless of the term period.
The term period simply locks in the policy cost for that specific time. Do life insurance policies expire after death? Essentially, yes. They are paid out to the beneficiaries and are no longer expected to be paid for, so choose as long a term as necessary.
If you buy a 10-year term policy, your rate will not increase for 10 years. However, once the term period expires in the eleventh year, the rate guarantee is gone, and the cost will go up significantly.
The longer the term period, the higher the cost. So, 30-year is more expensive than 20-year, which is more expensive than 10-year. The reason is simple: Youre paying for a longer rate guarantee. Naturally, that is going to cost more.
Mistake #: Buying A Short Term Policy Because Its Cheaper
Rates for a 10-year term will be less compared to rates for 30 years or the 20-year term life insurance policy. To save money, you decide to purchase a much shorter term life insurance policy but that can be a really bad idea since it is such a short policy length.
It is highly recommended you get a minimum 20 to 30-year term life insurance policy. These policies are a great middle ground policy as they are not too short nor too long.
Some people will choose to get a 10-year term life insurance policy but consider what would happen if you developed medical issues over the next 10 years. You might not be able to get a new policy for your whole life or it will cost you an arm and a leg! Shorter-term life insurance policies have there place in certain situations but are often just a really bad choice for the majority of situations since most people live longer.
Whether choosing a 20, 25 or 30-year term life policy will depend on your situation. You should purchase a policy based on when your children will be heading off to college and living on their own. If you do not have children but plan on it in the future, you should purchase a 30-year policy. If your children are around 5 years of age, a 20-year policy is your best bet.
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Generational Views About The Cost Of Life Insurance
According to a ValuePenguin survey, more than a third of the total respondents did not have a life insurance policy.
When pressed about the main reason behind this decision, more than 40% of individuals said that it is too expensive to purchase life insurance. Furthermore, over half of baby boomers think policy premiums are too steep and thus do not currently have life insurance. Investing in a policy when you’re young can be cost-effective, and boomers are feeling the effects, like price, of not purchasing life insurance until later in life.
However, when asked, “When should you purchase a life insurance policy?” over 37% of total individuals responded, “While you are young and healthy.”
Views as to when prospective policy holders should purchase life insurance?
|After the birth of first child||20%|
|While you are young and healthy||27%|
|After buying your first home||8%|
|When you reach retirement age||7%|
|When you get your first full-time job or promotion||8%|
When Should You Buy A Decreasing Term Policy
Like , a decreasing term policy is often attached to a large personal or business loan. You might buy a decreasing term policy because youâve saved enough to support your family after you pass away and only need your benefit to pay the balance of your loan in the event of your death. This way, you never pay for more life insurance than you need.
Most people encounter decreasing term life insurance as mortgage protection insurance . MPI is a decreasing term life insurance policy that you purchase through your bank and may pay as part of your mortgage. In the event of your death, the life insurance company pays the death benefit directly to the mortgage company.
MPI differs from private mortgage insurance , which your lender may require you to buy if your down payment is less than 20%. PMI protects your lender if you default on your loan, but doesnât offer coverage if you pass away before paying off the loan.
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Term Life Insurance Rates By Policy Length
Examining quotes for 10- and 20-year term life policies, you can see that the shorter the term length of a life insurance policy, the cheaper the life insurance premiums you will have to pay each year.
We have broken down the premiums by what is called rating class. A rating classification is the health rating that the life insurance company assigns to you after you have taken a medical exam. The rating you receive directly affects the rate you pay for your life insurance policy. These metrics are determined by each individual life insurance provider, but only vary slightly across the industry. Health indicators such as blood pressure, smoking and cholesterol levels impact your rating classification.
How To Select The Right Type Of Level Term Policy
When you are considering which type of level term policy to purchase, there are three primary considerations to deal with:
- Amount of Coverage Believe it or not, this is where most people get it wrong. Many applicants use a monthly premium for deciding how much insurance to carry than the actual needs that must be met financially if they should die unexpectedly. Deciding on the proper amount of coverage is critical when purchasing life insurance and should be discussed with an experienced agent who is willing to complete a needs analysis to help you see a realistic financial picture of what will happen if you die. Agents will not charge you for advice but rather earn a commission from the insurance company.
- Policy Term Policy term is another aspect of purchasing term life insurance that many people get wrong because once again, they focus on the premium rather than the risk. For example, if you are in your 50s and approaching retirement, a 20-year term is more appropriate because of the savings versus a 30-year term and the fact that youll likely want to convert it to permanent insurance when you get into your sixties. Once again, focus on the need rather than the premium and take advantage of the advice from an experienced and reputable independent agent.
- Optional Riders Although most companies offer the Accelerated Death Benefit rider at no cost to the applicant, the balance of available riders will increase the periodic premium.
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Heres the truth about life insurance agents: While a 20-year term policy will do the job for 90% of Americans, many agents will try to sell you 30-year term policies or whole life policies.
They make more money that way!
In this guide, Ill share why a 20-year term may be just enough insurance coverage for you.
What Is A Return Of Premium Term Life Insurance Policy
Before you agree to your term life insurance policy, youll want to ask about a return of premium rider.
This rider is basically designed to give you a partial refund of your term life insurance policy if you outlive that policy. In this case, you havent spent 30 years paying your insurance company with nothing in return.
Return of premium life insurance costs more than regular term life insurance, just like most of our other life insurance options. Rates will depend on which company you choose and variables like your age and health.
Generally, rates are about 30 percent9 higher for return of premium life insurance.
Return of Premium vs Term Life Insurance Rates
If you are in good health, it might be worthwhile to set up your term life insurance policy with a return of premium rider to treat your insurance more as an investment.
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Year Term Life Insurance
Today, youre going to learn all about 20-year term life insurance.
Whether you need help deciding what term length to get for your life insurance coverage, or if youre still trying to figure out if life insurance is right for you, this article will help.
Let us help you find the right policy to get coverage for you and your loved ones.
Many people who are between 20 and 30 seem to overlook getting life insurance, believing its not necessary at this particular time in their lives. Many believe due to great health and living in a lower income bracket, they can ignore buying life insurance. However, in reality, it doesnt matter how old you are, if you were in a fatal accident, the loss of your income will affect those in your life.
There are several different life insurance policies but if you are in your 20s and 30s, you might want to learn more about a 20-year term life insurance plan which will cover you for 20 years and the payout will remain the same. Should something happen to you, your beneficiary will get the full amount of the policy.
How Do You Extend Your Term Life Insurance Coverage
If youve secured a renewable term life insurance policy, you might be wondering how long you can keep renewing your policy. Typically, policies will not retire at a specific age, but on a date.
If you have annual renewable term, you might be able to keep renewing the term for some time.
Although rare, some term policies are renewable until the insured reaches the maximum age for term life insurance of 95. However, beware, if you have term life insurance to age 95 and you allow it to expire you might be left out in the cold with no options to qualify for a new policy.
For term life insurance, depending on the terms of renewal, you can keep your existing policy in force by continuing to pay the premiums.
Pros This option may be worthwhile if you find you need the coverage for a short period, say 2-3 years. Also, this may be a good choice for a no medical exam life insurance policy if you cannot qualify for a new policy due to a change in health.
Cons The cost to keep the policy in force will increase significantly. And it will continue to increase each year as you age. Check your policy for a page that shows the estimated annual premiums for the policy term and the years that follow.
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Term Life Insurance Helps Your Loved Ones After Youre Gone
Eric is a duly licensed Independent Insurance Broker licensed in Life, Health, Property, and Casualty insurance. He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business.
Term life insurance is a type of life insurance policy that is in effect for a limited time, such as 30 years. It pays a death benefit if you die during the term of coverage. Its designed to protect those who depend on your income or the services you provide in case you die while people are counting on you.
Term life insurance makes sense for most families and is a useful tool to provide liquidity after a death, John Strohmeyer, a tax and estate planning attorney and proprietor of Strohmeyer Law PLLC in Houston, told The Balance via email.
Learn how term life insurance works and if it makes sense for your situation.
Should I Buy A 20 Or 30 Year Term Life Insurance Policy
A 20 year term policy is going to be more affordable than a 30 year term however, the 30 year term will lock your rates in for a much longer time which ends up giving you the most savings. If you have a 15 year mortgage and a small family, then you might only need a 20 year term. If you have a 30 year mortgage and a larger family you should look at the 30 year term life option.
Its all going to come down to your specific situation, just remember, the longer the term, the higher the premiums, the shorter the term the smaller the savings.
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How Do You Find A Good Life Insurance Agent
The best way to find a good life insurance agent is through referrals. Talk to people you trust, like your accountant or financially savvy friends and family, and find out who they worked with. Confirm that anyone you’re working with has a license in good standing in your state. Check the ratings for any company you’re considering buying a policy from.
How Does Term Life Insurance Work And What Are Its Benefits
If you are shopping for term life insurance for the first time, you are probably collecting quotes for policies of different lengths with different premiums and different benefit amounts.
What is term life insurance? There are several types of term life insurance, and lots of people choose it because it is the most affordable life insurance option.
Term life insurance offers coverage for a distinct period of time. This means after the defined term length, your coverage will expire.
Term life coverage is a useful way to keep premium costs down while you are younger and healthier. Check out these sample rates from Allstate to get a sense of the cost for a 10-year term with $250,000 in benefit.
Allstate Average Monthly Term Life Rates Male vs Female
|Life Insurance Policy Type|
These rates are much lower than permanent insurance rates which cover you for life, or at least until you reach age 120. This is because as you grow older, your risk of death increases. The riskier you are to an insurance company, the more your insurance will cost.
For term life insurance, you can keep your insurance coverage costs down, but when your insurance expires, you might have a tough time renewing your insurance or obtaining a new policy.
Its best to consider your options when you first purchase a policy rather than waiting until the policy expires. What happens when term life insurance expires?
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Find Cheap Life Insurance Quotes In Your Area
Life insurance companies mostly base their rates on your age and health status, but they also factor in your job, your weight, whether you smoke and even your family health history. Unlike other kinds of insurance, life insurance quotes aren’t affected by your location. We compiled rates for a variety of policy types and customer profiles to calculate the average cost of life insurance.