Top Life Insurance Policies Explained

There are so many different options for buying life insurance, but it is not that complicated. Essentially there are two types of policies, and some variables that pertain to each helping people to decide which is in their best interest. Term, and whole life, are the two main policies, and the major difference between them has to do with the timeline associated. Term refers to a specific length of time while whole life refers to a more permanent time frame. Understanding the pros and cons of each type, is the most efficient way to select a policy that will be of the most benefit to you and your family over time.

Whole Life Insurance

This option is the closest thing to autopilot that you are going to get regarding policy selections. Since the period of time associated with whole life insurance lasts until the holder passes, as long as the premiums continue to be paid in full and on time, essentially you can ‘set it and forget it.’ This is the more expensive of the two but provides a peace of mind that many find they do not get with other options.

Added cash value is also an attractive aspect of whole life insurance, especially when thinking about a viatical settlement. If there has been a significant change in health, premiums have become unaffordable, or the policy is no longer needed, and viatical settlement allows the holder to sell their policy to a third-party to receive a cash settlement. This cash can then be allocated to whatever the individual decides, medical expenses, long term health care costs, or towards reduction of other debts to ease the burden on family once they pass. The choice to seek a viatical settlement can seem grim, but it provides financial freedom from paying the monthly premium if coverage is realistically no longer needed.

Term Life Insurance

This is the more simple and accessible policy between the two. Set up for a distinct period, this policy has an expiration date, and if its holder passes prior to that date the benefit will be paid to a designated beneficiary. Having a payout to your beneficiary in place is important especially when you think of funeral expenses, and to have the adequate funds on hand for the costs of listing and selling your home. The expiration factor can be considered a con depending on the condition of the holder. If you anticipate the policy expiring and still needing to be insured, then the process of having to shop a new policy or convert your existing one to whole life can feel daunting.

If you outlive your policy and do not convert it, then your beneficiaries get zero payout. However, since this is the more affordable of the two types, consider the cost of your premiums and if you are taking out a policy at a younger age, and/or when you are in good health, having a lower premium that will still contribute to your death benefit for your beneficiaries might be a smarter choice at this time. A term policy holds and will not build any cash value, so if maximizing your death benefit long term is a primary goal then consider that when selecting your plan.