Buying life insurance is always a good idea because you never know when you might fall in a situation where you’ll need extra financial help to take care of matters at hand. Life insurance provides the policy holder or their beneficiary with financial benefits that can help protect against death or life-altering accidents.
If you are about to buy life insurance, you will come across two distinct type of insurance policies. While both the types offer financial benefits to the policy holder or beneficiaries, there are some considerable differences between the two. As such, it is important to understand which type of insurance you should go for, and what your needs are.
To better understand which type is best for you, let’s take a look at the two types of insurance and what they offer:
Term Life Insurance
Often considered as the easiest and the cheapest type of life insurance available, term life insurance is an excellent source of added cover that can prove to be quite beneficial during one’s work years. Term life insurances are not only affordable, but also renewable sans any hassle.
As the term suggest, term life insurance is the type of insurance that can be bought for a specific period of time. This type of insurance is paid, dollar for dollar, and no equity or cash value is observed for the holder. The insurance amount is generally paid to the beneficiary of the insurance holder only upon his or her death. The cash benefits obtained by the beneficiary in this regard can be used to clear debts arising out of mortgages, loans, funerals and college tuition for the insurance holder’s dependents.
The term for this type of insurance is based on your needs. One can set the term of the insurance for one year, and can renew it every after hence forth. But there is a bit of a downside associated to it. Setting the term for a year means the insurance holder will have to prove his eligibility for the insurance every year, and in the process, the cost of purchasing the insurance will increase. You can also apply for renewing the policy right before its expiration date. But that can be done only at an increased cost.
Whole Life Insurance
Whole life insurance, also known as permanent life insurance is the type of insurance that carries less initial investment as compared to term life insurance. Here, the policies are held for a longer duration and are often paid out with death as long as the payments are made and current. Whole life insurances increase in value and can, as and when required, be borrowed from the insurance company prior to cashing in the policy. This benefit can often assist a family during their times of financial hardship.
However, it doesn’t come without a downside. The overall cost of the insurance versus the benefits might not always tally. To make my point simpler, in a whole life insurance scheme, the amount you pay in premiums may not be worth the pay-out benefits when you need them. As such, it is important that you got an accurate idea of what the cost versus payout will be, when going for a whole life insurance cover.
Purchasing life insurance can be quite beneficial and offer financial security, provided you understand the basics and use your knowledge accordingly.