When it comes to life insurance there are a number of barriers people run into.  First, nobody expects to die early, so why worry about life insurance?  And then, after one realizes that premature death could happen, nobody really wants to talk about death.  Finally, there are so many different types of life insurance out there that it can be mind boggling to determine which type is right for you.  When it comes down to it, you have two basic options: term life insurance, or whole life insurance.  Should you stick with the cheaper term insurance, or splurge on the whole life?

Term vs. Whole Life Insurance

As a truck driver, you have a lot to worry about.  You know how unpredictable the roads can be, so in the event of a terrible accident you want to know that your family will be taken care of (not to mention the business debts eliminated).  You know that you need insurance.

What is Whole Life Insurance

Term insurance comes in a few different varieties.  But they all have one thing in common: they only last for a specified term.  It can be a set number of years before it expires, or it can expire when you reach a set age.  Regardless, when the term is over, you don’t have the coverage.

Also Read: How Much Life Insurance Do You Need?

Whole life insurance, also known as permanent, will last your whole life.  No matter if you die tomorrow, or at age 99, the insurance will still be in place (assuming you have paid your premiums).  Like its term counterpart there are many different ways to structure this type of policy, but the bottom line is that it will last until you die, no matter when that is.

Pros and Cons of Whole Life Insurance

Most people would look at term insurance and whole life and immediately opt for the policy that will last as long as they do.  That is until they see the price tag.  The biggest drawback for a whole life policy is the fact that it will cost around 10 times as much as a term policy.  Part of that is due to the fact that the vast majority of the claims are paid on whole life policies; people generally don’t die during the term period.  The other part is the perks offered by the policy.

As the policy ages, the death benefit grows.  In order to keep up with inflation (as well as maintain the tax advantaged state of the cash value) the death benefit gets larger each year.  This helps tremendously when 40 or 50 years from now, when the insured does die, and the death benefit is enough to cover what it was needed for.

Most whole life policies build cash value.  This is a side fund associated with the policy that grows along with it.  It can be tapped into at any time, or it can be used as an alternative method of saving for retirement.  Many people like it because they can have their insurance, and then after they retire and they don’t have a need for insurance any longer, they can cash out their policy.

But often people won’t cash out their policies.  Some of these policies have an age set where the insured will no longer owe premiums.  The policy stays in force, the cash value and death benefit continue to grow, but no more money is required to keep the policy alive.

Also Read: Top 5 Things to Consider When Choosing a Health Care Plan

There are a variety of other benefits associated with a whole life insurance policy.  But the bottom line is that they build cash value, increase the death benefit, and last as long as you do.  The drawback: they’re expensive.

Should You Buy Whole Life Insurance?

Most successful business owners have their lives insured with whole life insurance.  They like the added protection (not to mention the fact it can be used for estate planning), and the cash value.  However, most people can’t afford large quantities of whole life.  So they do a mix.
After determining how much life insurance you need, opt for a portion of it in whole life.  You can generally convert your term into whole life down the road if your income increases, or you can let the term expire and only keep the whole life to cover end of life expenses and leave an inheritance.

When you do buy life insurance, remember that not all insurance companies are created equal.  Find one with strong financials that you know will be around in 50 or 100 years.

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Darrell Hirengen

Darrell is a general ledger accountant at ATBS. He received his Bachelor's degree in Accounting and is presently working on his Master's degree in accounting. Prior to joining ATBS he was an accounting associate for a large private food company. Outside of work Darrell likes to play video games and go camping.

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We have some of both. As I age, I don't NEED as much life insurance. The whole life policy has become available cash - just in case.

August 23, 2015 10:17:46 AM