Which Is Right For You? – Pas Trusted News

Two common types of life insurance, term life insurance and whole life insurance, can be useful coverage for many people.  

However, term and whole life insurance function very differently. Term life insurance covers a person for a set number of years and expires after that term, while whole life insurance covers a person for their entire life and builds cash value that can be used while living. These two types of life insurance are designed for different wants and needs, and the right one for you largely depends on your financial goals.

Here’s what you need to know about the two types of life insurance and how to decide which is right for you.

While they’re both types of life insurance, term life and whole life insurance differ on several key points.

Term life insurance is a policy that covers a policyholder for a set period, generally 10 to 30 years. The death benefit is only paid out if the person dies during that term — if you outlive the term, the policy expires. It’s useful for those who have temporary needs — like parents with young children or people paying off a mortgage with a partner.

If you’re looking for the best term or whole life insurance, CNBC Select has done some of the research to make your decision easier. We rated Northwestern Mutual as our top pick overall for life insurance products for its high customer satisfaction and financial strength ratings. We also picked Guardian for term life insurance because of the company’s convertibility features on term policies and high financial strength ratings.

Northwestern Mutual Life Insurance

  • Cost

    The best way to estimate your costs is to request a quote

  • App available

  • Policy highlights

    As the largest life insurer by market share in the U.S., Northwestern Mutual is an established choice with a proven record. And, it offers a number of types of policies across the country.

Guardian Life Insurance

  • Cost

    The best way to estimate your costs is to request a quote

  • App available

  • Policy highlights

    Guardian offers a variety of policies, including term, whole and universal. It also offers term policies that can be converted into whole or universal life policies, along with strong financial strength ratings.

Whole life insurance is a permanent policy that covers a person for their entire life. This type of policy can do more than just pay out a death benefit. “It’s got more flexibility and more features than a term life insurance product does,” says Jason Handal, head of risk products at Northwestern Mutual. “It gives you a guaranteed death benefit and it gives you guaranteed cumulated values. It can earn dividends.”

MassMutual is a top choice for those looking for whole life insurance due to its range of policies available. MassMutual also consistently pays out dividends to policyholders and has high ratings for financial security from AM Best.

MassMutual Life Insurance

  • Cost

    The best way to estimate your costs is to request a quote

  • App available

  • Policy highlights

    MassMutual has been in business for over 170 years, and carries the highest ratings for financial security from AM Best.

Here are the main differences you should be aware of when considering these types of life insurance:

  • Cost. Term life insurance is more affordable than whole life insurance. Whole life insurance costs around six times as much as term insurance with the same death benefit, according to Prudential.
  • Cash value. Whole life builds cash value — which can be borrowed against or withdrawn later on in life — at a guaranteed rate every year. Term life doesn’t build cash value.
  • Policy length. Term life insurance generally lasts for a period of 10 to 30 years from purchase. Whole life insurance can last your entire life provided that premiums are paid on time.
  • Dividends. Some whole life policyholders are able to earn dividends or portions of the insurance company’s profits with participating policies issued through a mutual company. This isn’t offered for term life insurance policies.
  • Death benefit. With term life insurance, there’s no guarantee that anyone will receive money since the policy only pays out if you die during the set period. With whole life insurance, you’re sure to leave a financial legacy as long as your policy is in force.

Benefits of term life insurance

  • Lower premiums. Term life insurance can be significantly cheaper than whole life insurance, as well as other types of permanent life insurance. That could leave more money in your budget to invest for retirement on your own.

Drawbacks of term life insurance

  • No guaranteed death benefit. If you outlive the term of your term life insurance, the policy expires and has no value. If you’re looking for a way to leave money behind, a term life insurance policy most likely isn’t a good fit.
  • No cash value. Term life insurance doesn’t build cash value.

Benefits of whole life insurance

  • Can build cash value for later in life. It grows at a guaranteed rate, and you can use this money while you’re alive to pay premiums, back a loan, or increase the policy’s death benefit.
  • Can be useful for estate planning. If you want to pass along money to heirs with tax benefits, a whole life insurance policy can oftentimes be helpful.

Drawbacks of whole life insurance

  • Higher monthly cost. Whole life insurance premiums will likely cost several times what a term life insurance policy would cost.

Term life insurance makes sense for those who need to cover a temporary need. Oftentimes, term life insurance works well for those who have obligations that will eventually no longer be there, like having young children or having a mortgage. Term life insurance can provide coverage during those years when your income is necessary for those who depend on you. Since it’s generally more affordable than most permanent life insurance, term policies can be a good fit for those who have a limited budget but need coverage.

Additionally, term life insurance can have some flexibility. Some policies can convert from a term policy into a permanent policy within a number of years as your needs, income and responsibilities change. This feature, called convertibility, is generally offered as a provision on a term life insurance policy called a rider.

Whole life insurance policy could be a better fit for those who need more flexibility than a term life insurance policy. That’s especially true for those thinking about their income needs in retirement and their estate planning situation.

While whole life insurance is first and foremost a life insurance policy, the cash value that whole life insurance and other types of permanent life insurance can build could be useful later on in life. “Having that having that cash value oftentimes is a really foundational part of a client’s overall asset allocation,” Handal says.

While whole life insurance may be more expensive in upfront premiums, these policies can be more flexible for those who are looking ahead in their financial lives.

Whole life and term life insurance are quite different — while whole life insurance builds cash value and guarantees a death benefit, term life insurance is far more affordable each month. The right one for you depends on your financial situation and life goals.

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