Affordable Life Insurance - Preferring Whole or Term

Affordable life insurance is crucial, however, given the cost of life insurance,a person may not be able to afford the desired coverage. Decisions between a smaller whole life policy, or a larger term life insurance policy are critical factors of affordability. In order to make the right choice, the following life insurance tips will help:

Basics – Whole Life vs. Term Life

While there are many life insurance types, the two major types are Whole life and Term life. Whole life insurance covers a person for the duration of their life, whereas term life insurance has a limited period of coverage. Term insurance can range anywhere from 5 to 20 years, after which time the policy automatically lapses unless a renewal option is available and is exercised. Given this scenario, for the person considering whole life versus term insurance, the insured will pay far less premiums for term life as opposed to that for whole life for the same amount of coverage. Whole life policy holders do not have to worry about coverage lapsing.

Age & Health at Time of Policy Purchase & Renewal

Both whole life and term insurance premiums are based on the age and health (amongst other factors) at time of policy purchase and upon renewal. It is important to keep in mind that while term life insurance can typically be renewed, the premiums will be re-factored based on the age and health of the person at time of renewal, and may require a new medical exam to be undertaken on the life insured. Furthermore, a majority of insurance companies do not offer life insurance policies to persons over the age of 65. This means that while term insurance may be a cheaper option in comparison to whole life when a person is younger, the equation reverses dramatically as the life insured ages.

Non-forfeiture Benefits

Non-forfeiture benefits are benefits such as Cash Surrender Value (CSV), allow a policyholder to extract financial benefits from accumulated premium payments over the course of time.  Term insurance contracts offer non-forfeiture benefits. CSV and policy loans are important components of a life insurance policy because these options act a vehicle of forced savings, which can be utilized in the time of need.

In the case of whole life insurance policies, there is an additional option of paid-up insurance that allows the policyholder to convert the existing policy into a fully paid-up policy that does not require any further premium payments. The coverage amount of the insurance will be based on the amount of premium paid to date into the whole life policy at the time this option is exercised.

Conversion Features

It is important to note that term life insurance policies typically have conversion options that can be exercised within certain time frames to convert the policy into a whole life policy. Premium payments may change upon exercising this option.

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