Life insurance helps protect your family in the event of your death. No matter what’s in your bank accounts, you can ensure your family has the funds to continue paying bills and clearing any debts once you die. Life insurance is also good for making sure that someone outside your regular group of beneficiaries will receive money. But life insurance comes in many forms, with term and whole life often mentioned. Which is right for you?
What Is Term Life Insurance?
Term life insurance covers you for a specific term. This can be a short or long time and is useful when you want to be sure your beneficiaries will have cash should something happen to you before some event. For example, you may get term life insurance to cover the years your kids are still dependent on you. A term life insurance policy is fixed. If you die after the policy expires, it will not pay out.
What Is Whole Life Insurance?
Whole life insurance covers you for (technically) your whole life. (More on that “technically” in a bit.) You buy the policy and keep paying in until you die or cancel the policy. There’s no choice in terms; you can’t buy whole life that expires in 20 years, for example.
Why Would You Want One Over the Other?
Term life insurance in NYC is great when you need life insurance coverage for a specific amount of time. It’s also good for when you want some coverage but can’t pay that much in terms of premiums. Term insurance is much cheaper than whole life.
Whole life insurance is great when you want coverage that will last into your later years. It can be much more expensive, but part of the premiums you pay go toward cash value that can benefit you in an emergency.
Other types of insurance can help your family; for example, in Manhattan, long-term care insurance is another option. But term and whole life benefit others after your death, while long-term care protects you and your family while you’re alive.
Why Does Whole Life Insurance Cost More?
Whole life insurance costs more than term life insurance simply because whole life covers more. It covers more years and is guaranteed to pay out, assuming nothing about your death violates any terms and conditions. There’s no real end point other than death and a payout, other than you canceling the policy. With term life, you only ask for coverage for a certain time. Insurers know there’s a good chance you’ll outlive your term life policy and know they may not have to pay anything to your beneficiaries. So, you get a break on the price for taking the chance that your family may see no return on that money.
Whole life insurance can expire. But it’s usually at an age that few people live to, such as into their 90s or 100s. If your family has a record of particularly long life spans, then you’ll want to keep this expiration in mind and find a policy that expires at a much older age. Some policies will run until your 110s or 120s!
What Does It Mean to Have Cash Value in a Policy?
Whole life policies have some cash value that you can borrow against or even cash out. As you pay in, part of your premiums go toward this cash value. You can think of these policies as a sort of savings that you don’t want to touch unless there’s an emergency. These cash value policies benefit insurance companies because they keep the cash when they pay out. (In other words, your beneficiaries don’t receive both the policy’s stated value and the cash; the company holds the cash and offsets the payout.)
Obviously, you don’t want to treat these policies like regular accounts. What you take out reduces the amount of the benefit paid out when you die. But it’s nice knowing that, if you really need to in an emergency, you can access some of what you paid in years down the line.
Contact Margolis & Associates to find out more about term and whole-life policies. Our representatives can help you choose the type of insurance most appropriate for your situation.