Term vs. Whole Life Insurance

Insurance - it’s more than necessary but nobody likes talking about it, or dealing with most life insurance companies. Life insurance, just like car insurance or renters insurance, is designed to protect you and those you care about when they need it the most.

In order to better understand the difference between term life insurance and whole life insurance, it might help to briefly explain the purpose of life insurance in general and how it helps your loved ones in the event of your death.

What is a life insurance policy?

When we're talking about life insurance, as it is, without any fancy words attached to it, it's pretty simple. Life insurance is a contract in a sense, between an individual and an insurance company that guarantees that when the insured person passes, their beneficiaries are paid out the sum of the policy's value.

Life insurance helps heirs and beneficiaries with helping to cover funeral costs and other funeral expenses as a death benefit - losing a loved one is never easy, but when they have a life insurance policy that has a death benefit amount that can go towards these expenses and fees, it makes the process a bit easier to deal with.

You can also use life insurance, depending on the specific policy, in order to pay outstanding loans the insured person had before their passing. However, you'll want to look at the complete details of the insurance policy, or talk to financial professionals, to see what exactly is included in the plan.

What is term life insurance?

Term life insurance is a life insurance policy for a specific term with a specified end date- makes sense, right? When you have a term life insurance policy, your beneficiaries are only paid out if you pass during that specified period.

For example, if you're 24 now and take out a term life insurance policy for 30 years - your term policy will expire when you are 54, so if you pass away anytime between 24 and 54 the beneficiaries you designate will receive a payout for the cash value of your policy. Most of the time, these policy's cash value stays the same throughout the time the term insurance is valid, which is commonly known as a level term. Typically term life insurance ranges from anywhere between 10 and 30 years

What factors influence life insurance?

Gender is by far the biggest one - and average monthly premiums for men are typically higher than women. That being said, other factors that life insurance company's consider include:

• Coverage amount
• Length of term
• Age
• Health history + health issues
• Family health history
• Dangerous hobbies or occupations (if you're in construction vs. an office job)
• Whether or not you are a smoker

Pros and cons of term life insurance

Just like with other big life decisions, making sure you have the right life insurance policy is paramount - so let's look at the pros and cons of term life insurance to get a better idea of what you're looking at with both.

Pros

• Much cheaper and more affordable than other life insurance policies, such as whole life insurance
• Allows you to have control over your investments and provides an investment that will give you a return
• Overall, less complicated to understand and easier for your heirs and beneficiaries to manage in the event of your death.

Cons

• There aren't many, if any at all, but those companies that want to sell you whole life insurance will use the pros in a way that appears to complicate the process to showcase that whole life is "better".

Term life insurance is like a safety net for life, compared to a permanent policy, like whole life insurance - once it expires the coverage ends and your beneficiaries are not paid out. You can resume term coverage after a certain period expires in order to ensure you're covered but with additional cost and a lower monthly premium.

Who needs term life insurance?

Anyone can get term life insurance, there is not a standard of pre-qualifications that you need to meet in order to take out a policy, but the most common scenarios are:

• cover you while you're working to ensure that your family has a steady flow of income if you pass
• cover large loans and payments like mortgage so that your family is covered
• cover the years your children are in college to ensure that tuition is paid for
• pay for funeral costs

While these are the most common reasons people get term life insurance, there are no pre-qualifiers, or specific types of people that need term life insurance. When it comes to making sure that your heirs and beneficiaries are taken care of, it doesn't hurt to have it as a safety net and an in-case. If it expires and no payouts were made, great, but it was there in case you needed it.

What is whole life insurance?

Whole life insurance is vastly different from term life insurance and is definitely not recommended. Some insurance companies will try to take the pros of term life insurance policies and twist them to make them sound like the less optimal solution compared to permanent or whole life insurance.

A whole life insurance policy is designed to be helpful - it's designed to work as life insurance and as an investment account because it builds cash value. However, the problem with this lies in that it often has very low returns, if any at all, and it's so much more expensive per month.

How is whole life insurance different from term life insurance?

The biggest difference is in the coverage period - a term policy has a set period of anywhere from 10 to 40 years. In comparison, permanent coverage is exactly as it sounds - permanent, there is no term end date or specific term period.

The other biggest difference is that with life, if death proceeds you being able to actually withdraw your savings from the account, your beneficiaries will not see the money that was set aside to help them in the event of your death. Term policy is designed to ensure financial protection, whereas a whole life policy is not helpful unless you are able to withdraw your savings from the account before you pass.

Permanent life insurance may have a specific cash value component that makes it sound appealing, but if you are going to buy life insurance to actually protect and ensure the well-being of your beneficiaries, taking out permanent life policy will not bring about death benefits, unless you can predict exactly when you are going to pass - which is impossible.

Why is having a life policy important?

Insurance is there for protection - whether it's your car, your home, or yourself - in the event of a tragedy or an unexpected life event that leaves your loved ones left to take care of funerals, medical bills, and other payments, having a policy is important.

If you take one thing away from this, it should be that no matter what you should invest the time to research and the money to purchase a policy - your heirs and beneficiaries will thank you and you'll feel better knowing they're taken care of.

What if I'm in good health?

Even when you're in good health, you go to the doctor at least once a year for a wellness check and physical. You go to the dentist at least once every 6 months to make sure your teeth are healthy. Just because you are healthy, doesn't mean you shouldn't take preventative measures to ensure that your loved ones are taken care of if you happen to pass.

Not to mention, life policies are often more for your beneficiaries than you yourself as they cover your annual salary to supplement lost income from your death, it covers bills and other financial hardships your family may encounter.

What age group needs a policy?

Honestly, it doesn't matter. Anything can happen at any point and if you are prepared and backed by the financial support of life policies, it makes everything easier.

Where do I find a policy that works?

There are a few different ways you can enroll in a policy. You might also want to talk to your tax advisor about what works best, a whole life policy or term policy, and what your specific financial goals are. They can find something that fits into your goals and covers what you need the most.

Ethos Life

Ethos life is an instant term life policy with a ton of benefits including:

• No medical exams
• Same day coverage
• Affordable policies
• Honest advice from non-pushy agents

Ethos wants to help you find the right policy for your and your lifestyle, an insurance agent doesn't push products or services that won't benefit you. All you do is answer a few medical history and health questions in order to get covered. You should still consult with your financial advisor to talk about other options and what premium payments would be best for your current situation.

Let's Recap

Life insurance often evokes reluctance in discussions despite its vital role in protecting loved ones. Life policies provide a safety net for beneficiaries, covering costs of a funeral and outstanding debts upon the insured's death.

Term policies offer affordable premiums for a specified term, ensuring straightforward coverage for various needs like income replacement and mortgage payments. In contrast, whole life, though costly, has lifelong coverage that builds cash value but may not yield significant returns. Regardless of age or health status, securing a policy is crucial for financial stability and ensuring your loved ones are taken care of.

Ethos Life offers instant term policies with benefits such as no medical exams and same-day coverage, emphasizing honest advice tailored to individual needs. Investing in a life policy guarantees peace of mind for both policyholders and beneficiaries.

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