Compare and contrast: Term life insurance and whole life insurance
Needs evolve. And your insurance should change with them. But deciding what product is best for you is a more difficult choice. There are benefits to retaining your term policy, but many people enjoy added protection by converting to a permanent or whole life insurance policy.
The Value of Term Life Insurance
Term life insurance is designed to help people purchase the protection they need when they can't afford to purchase permanent life insurance or when they only need coverage for a specific period of time. Term life insurance has a guaranteed death benefit but no cash value and the premiums will increase at pre-determined intervals such as after 1 year, 5 years, 10 years or 20 years, depending on the kind of policy you purchase.
It is also very often the product of choice when protection needs may be high for a period of time, such as when your family is growing. Term life insurance can also be an effective way to supplement permanent insurance during high-need years, such as when family and other financial responsibilities are outpacing income.
Whole life insurance, in contrast to term life insurance, was designed to provide life insurance coverage plus other additional "living benefits," including guaranteed cash value accumulation, eligibility to earn dividends 1 when the policy is issued by a mutual company such as New York Life, and loan and withdrawal privileges. 2
The Value of Whole Life Insurance
Cash value life insurance is often the best long-term solution for many people. Here are just a few of the reasons:
Cash value life insurance provides life-long insurance protection. Once you have been approved for the coverage, your policy cannot be canceled by the carrier as long as premiums are paid when due. Regardless of your health, the insurance will remain in force.
Whole life insurance builds guaranteed cash value. This amount can be used in the future for any purpose you wish. If you like, you can borrow cash value for a down payment on a home, to help pay for your children’s education or to provide income for your retirement. 2 The guaranteed cash value can be increased by dividends when declared by the company.
A short comparison list may help illustrate the differences between term life insurance and whole life insurance:
|Designed for short-term needs, or when funds are limited||Designed for long-term needs|
|You pay for pure death benefit protection, without cash value accumulation||Has cash value accumulation, which is accessible through loans or partial withdrawals,2 and may also be exchanged or surrendered for an annuity3|
|Inexpensive initially, with costs increasing at each renewal point||Premiums are higher initially, but remain level, regardless of age, for the life of the policy|
|Premiums are usually guaranteed only for the initial term||Also, premiums may be reduced or paid by surrendering dividends1|
|Term conversion privileges are available with most policies. This privilege allows you to convert to a permanent policy that builds cash value, with no additional medical underwriting|
1 Dividends are based on the policy's applicable dividend scale, which is neither guaranteed nor an estimate of future performance.
2 Loans against your policy accrue interest at the current variable loan interest rate and decrease the death benefit and cash value by the amount of the outstanding loan and loan interest. Withdrawals will also decrease the death benefit and cash value.
3 These options are based on the type of policy purchased, its cash value accumulation and its contractual provisions.
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