Do you believe life insurance is life insurance and all types are created equal? Nothing could be further from the truth. In fact, there are many types of life insurance programs and even variations within the different programs (see more about these difference here). So here’s a quick explanation between Term and Whole Life Insurance.
What is Term Insurance? We like term life insurance to renting insurance coverage. You take a term policy in amount that covers you in case you die during the time you hold the policy. While the initial monthly premiums may be lower, especially if you secure the policy when you’re younger and typically at your healthiest, over time term can actually be more expensive since the cost goes up as you age or as your health changes. And the policy only covers you while you hold the policy and typically it only pays out in case of your death.
What is Whole Life Insurance (also known as Permanent Life Insurance)?In comparison to Term Life insurance, Whole Life or Permanent Life Insurance is like buying insurance coverage, where you pay a monthly premium and you accumulate a cash value in the life insurance policy over time. Like Term Insurance, buying a permanent policy when younger and healthier can lock-in better rates and gives more time for cash value to grow. However, premiums are generally higher than with a term policy. However, even if you stop paying into the policy (either temporarily or for good) your Whole Life Insurance policy still have a cash value that can grow year after year and that you can leave untouched or use to fund other financial goals. In addition to the cash value of a Whole Life Insurance policy, there are tax advantages to using Whole Life Insurance to help fund your retirement. Since you pay into your life insurance policy pre-tax, when you elect to cash out the value of your whole life insurance policy you do so without any tax implications.
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