Many people buy life insurance with a very specific purpose in mind. Their overarching objective for their coverage, however, is to provide their loved ones with a financial settlement in the of their deaths. There are numerous types of life insurance policies on the market, and each is designed to provide specific benefits that are customizable to the individual needs of the policyholder.
Since everyone is different, it is critical that you optimize your life insurance policy to your advantage. To do so, one thing you will want to think about is for how long you actually want to carry coverage. Some people only want life insurance for a certain expense that might become moot after a number of years. Others, however, will want coverage for the rest of their lives. In either situation, a different type of policy—term life insurance or whole life insurance—will be necessary.
Whether you buy a term life or a whole life policy will determine for how long you will have life insurance coverage. Given that the purpose of your coverage will often help you determine for how long you actually need it, then you must approach your policy from a usage-specific point of view.
The Difference Between Term & Whole Life Insurance Policies
Term life and whole life policies are the two foundational types of life insurance policies. While there are numerous specific policies on the market, they fall under either the term life or whole life umbrella. The main difference between these policies is that one has an expiration date that is set in stone, and the other does not.
A whole life insurance policy is just as it sounds; There is no expiration date, and as long as the insured lives the policy will remain in place, provided that they continue to pay for the plan. You will never have to worry about a potential policy expiration, nor the hassle of re-enrollment as the years pass.
Term life policies, on the other hand, have expiration dates attached, and they will end on those dates regardless of whether the insured person is alive or dead. If the insured does not die before the term policy ends, then the policy and the death benefit simply end. There is no way to make a claim on the policy in the future. To continue to receive life insurance coverage, you will have to enroll in an entirely new policy.
Term policies often last for five- or 10-year increments, often 10, 20, 30 and so on. Therefore, they are often used by people who want to have life insurance that will be used for a very specific purpose. For example, you might choose to purchase a 10-year policy so that you are covered until your children have graduated college. Or, if you are buying your first home, then you can enroll in a policy that will help a loved one pay off the mortgage in case you die, and your paycheck won’t be available to support the cost.
Deciding how long you should carry life insurance depends on your specific situation. There is no right or wrong answer, as everyone’s situation is different. Life insurance is intended to provide for loved ones once you pass. Therefore, if no one will suffer a large financial burden with your passing, no matter when that might be, then you may not need the higher investment that is often brought by a whole life policy. A term policy might prove perfectly sufficient.
Still, regardless of your own financial stability, you should still consider life insurance to be a great asset to have. After all, whatever policy you do have can still provide a death benefit to your loved ones, and they will be able to use that benefit to ease any financial burden that they might face. In the end, a quality policy will still provide financial assistance, regardless of a loved one’s financial needs.
All in all, if you believe your death might leave your loved ones with a significant financial burden, then carrying a whole life policy, as opposed to a term life plan, might prove beneficial. Be sure to consult with an insurance agent, a financial adviser and your loved ones when determining which steps are best for you and your financial future.
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