What are the differences between term and whole life insurance policies?

In general, term life insurance means a policy with a specific end date. For example, you could buy 20 years of term life insurance, and that means if you were to pass away in the next 20 years, your beneficiaries would receive the money from your policy. However, after the 20 years, you stop paying monthly premiums and your beneficiaries are no longer entitled to these benefits should you pass away.

Whole life insurance, on the other hand, is designed to last one’s entire lifetime. As you pay into monthly premiums your whole life, cash accumulates, and when you pass away, your beneficiaries are automatically entitled to the money agreed to by your plan.

What are the benefits of Term Life insurance?

Term life insurance allows for a way to save on life insurance if they only need it for a specific circumstance. For example, Someone who is purchasing coverage for their children who is assuming their children will become independent adults in their 20s might choose a 20- or 30-year term life insurance plan.

Then, as the children begin making their own money the parent will go off the life insurance plan and no longer have to pay premiums, but their vulnerable years when they are too young to work for themselves are still covered.
Some companies will allow you to convert your term life insurance policy to a whole life insurance policy in certain cases.

What are the benefits of Whole Life insurance?

Whole life insurance is more expensive, but also a sure thing—the beneficiaries will receive something at the time of death if all payments have been made. Whole life insurance is more of a true investment than term life insurance, and it can gain value over time. Whole life insurance can in some cases be borrowed from for large purchases as cash value that accumulates later in life.

However, these cash value benefits generally take about 12 to 15 years to build value. People with many years left to live are more likely to benefit from whole life insurance, since its biggest additional benefits take many years to build. Term life insurance is more of a simple calculation for death benefits, while whole life insurance can in some cases offer additional benefits even though it’s more expensive on a monthly basis.

How do I know if I should get term or whole life insurance?—

Term vs whole life insurance is a question many new buyers ask themselves when shopping around for policies. While everyone’s life insurance needs are individual, in general, you should ask yourself if you need life insurance only for a specific circumstance, such as death during your working years while supporting a spouse, or if you want a guaranteed payout at the time of death.

Whole life insurance is more of a true investment in the long term but costs more in monthly premiums than term life insurance, while term life insurance has a built-in end point. This means it costs less, and premiums end when the term is up, but the coverage also ends at that point.

Why Would I Need Life Insurance?

While buying life insurance isn’t exactly a fun topic, approaching it from a positive point of view can make it a lot more pleasant to deal with. Life insurance can be a valuable and versatile tool for helping you ensure the future security of yourself and your loved ones. If you’ve been wondering if life insurance would be a good investment for your unique situation, read on for all the ways the right policy can help you achieve your personal and financial goals.

1.It’s way more affordable than you think

The good news is that you can most likely get more coverage for less money than you think. Recent research shows that half of adults in their 20s and 30s believe the estimated monthly premium for a $250,000 level-term life insurance policy, for a healthy 30-year-old, is $100 plus per month, when actually it’s closer to $17 per month. For this reason, many people delay buying life insurance until they have a health scare and end up paying a lot more than they would have if they’d applied earlier. Buying a life insurance policy when you are younger and healthier allows you to lock in lower premiums that can save you money in the long term. It can be helpful to know that you can always add additional coverage or change your coverage later on. Your life insurance policies can evolve as your life does. Some policies come with Living Benefits that allow you to use part of the policy in the event of a Chronic, Critical or Terminal illness.

2.It will reduce your anxiety and give you peace of mind

How long have you been thinking about buying life insurance? Many people have purchasing a policy on their mental “to-do” list for years before they take the steps to purchase a policy, knowing in the back of their mind that if something was to happen their family would be at risk for financial hardship. Almost half of households surveyed said they would feel a financial impact within six months if their primary wage earner was to pass away and 28% would be in trouble within the first month. Buying a life insurance policy is the best way to “hope for the best, while also preparing for the worst.” 

3.Debts will be paid if you died.

It’s common to delay buying life insurance in order to focus on paying off current debts and building savings. While this strategy is understandable, it can also backfire in the event of your unexpected death. Unpaid debts such as mortgages and credit cards can become a huge burden to the family you leave behind, creating additional stress in an already difficult time. Buying enough life insurance to pay off your current debts—as well as protect your families current standard of living into the future—will help protect them from potential financial stress and hardships.

4.Super Simple and Easy

Many people delay buying life insurance in order to avoid the hassle of researching the multiple types of policies and sorting out which ones might be a good fit for them. This is understandable, as there is a lot of information on different life insurance options, which can be overwhelming and confusing. Unfortunately, this “analysis paralysis” can lead to delays that lead to regrets. Research shows up to 40% of people who eventually buy a policy wish they had purchased their policies sooner. Visiting trusted internet sources, talking to your financial planner or other trusted, financially savvy people in your life and talking to a few licensed insurance agents are some of the ways to start the process. Stay motivated by focusing on the peace of mind you will feel when you know your loved ones are protected.

Get life insurance for you (whole life) and your children (term) as soon as they are born (one thing is for sure is we will die. Might as well leave your kids or family something extra). 

5.You’re taking charge of you and your family’s financial future

Having a life insurance policy through your employer can lull you into a false sense of financial security that allows you to justify not buying additional coverage. While a great additional benefit to have, group plans offered through employers generally only offer coverage of $25,000 to $50,000 or one- or two-years annual salary. These policies don’t offer nearly enough protection as most people will need at least 10 times their annual salary to begin to adequately protect the quality of life and futures of their families and loved ones. Also, work-based insurance plans won’t travel with you if you were to change employers or begin working for yourself. In summary, work sponsored plans are a nice perk, but to fully protect your family additional coverage is usually needed.

6.Your contributions are meaningful

It’s common for stay-at-home parents and other people who contribute in nonfinancial ways to the wellbeing of their families to think they don’t need life insurance, but this isn’t the case. Whether it’s earned income, childcare, home management or caring for an elderly parent your unique contributions will be difficult and likely expensive to replace. Have you ever stopped to estimate how much it would cost for your spouse to pay someone to do all the things you do? An unexpected death can leave a care gap that will be very expensive to fill. Life insurance isn’t just about replacing lost income, it’s about helping to provide everything your family needs to thrive.

7.Life insurance is a sound investment in the people you love

One of the primary reasons people put off buying life insurance is to avoid thinking about death. While this is a natural and understandable response, it can lead to procrastination that puts your family and loved ones at risk. Experts recommend creating a more positive framework by focusing on the hopes and dreams you have for the people most important to you instead. Envisioning all the positive outcomes you want for your loved ones—from college for your kids to a secure retirement for your spouse—can take the necessary steps to make sure they are taken care of no matter what.
Purchasing an individual life insurance policy will help protect the people you care about most, should the unexpected happen. Taking the steps to find the right policy for you can help you clarify what really matters and focus on taking charge of the legacy you want to leave behind—no matter what challenges life throws your way.

8. Business Planning

If you own a business, it’s vital that you have life insurance. This covers your obligations so your hard work doesn’t go to waste. Are you involved in a partnership with someone else? You should both have coverage. That way, if one of you dies, the other isn’t left holding the heavy financial bag.

9. Estate Taxes

When someone passes away, their heirs often face estate and inheritance taxes on any assets they receive. If you’re worried about your loved ones getting hit with a big tax bill, a life insurance policy can help cover these added costs.

10. College Planning

There are a number of ways to save money for your child’s education. You may not have thought that a life insurance policy would be a viable option. But insurance payouts can actually provide a good supplement your savings. If your child ends up borrowing money to get through school, the insurance proceeds could also help wipe out pesky student loans.

How do I buy life insurance with a pre-existing condition?

If you have a pre-existing medical condition, the best place to buy life insurance is through an independent broker. 

An independent life insurance broker doesn’t just work with one insurance company. A broker can have contracts with multiple top-rated life insurance companies and provide you with more than one option.

Life Insurance corp is an independent life insurance broker with access to over 25 of the nation’s top life insurance providers. If you have a pre-existing condition, we will shop around advocating on your behalf to find you the best possible price.

Why does a pre-existing condition matter to life insurance companies?

The approval and pricing of a life insurance policy is determined by the amount of risk the insurance company takes by covering you. To a life insurance company, risk is the probability of them paying out a death benefit claim. The insurance company pays out typically hundreds of thousands of dollars to a beneficiary if/when an insured person dies. 

Medical conditions can affect longevity. The risk of you dying sooner rather than later compared to someone without a pre-existing condition is higher. In the eyes of the insurance company, this means they are more than likely paying out a large sum of cash sooner. To make up for this higher risk, individuals with pre-existing conditions may pay higher premiums.

Not all life insurance companies will rate a pre-existing condition the same way, however. For example, while one insurer may offer a breast cancer survivor standard pricing a different insurer may decline the applicant. If you have a pre-existing condition, the cost for you to buy life insurance can vary greatly across life insurance companies.

How do pre-existing medical conditions affect life insurance?

When you apply for life insurance, the insurance company reviews your full application. This includes the information you provided on the application and during the verification call.

They will also review medical records, prescription history, and medical exam results (if the insurance company required one). Lifestyle aspects like criminal history and driving record are also reviewed. 

This process is called underwriting.

The underwriter determines your specific level of risk, based on their evaluation, and will either approve or decline your application. You may be approved as applied or they may change your initial risk class, which means your final price will be different than your initial quote. 

The risk class you’re placed in determines what your premium will be. Within every age group, the probability of death is greater for some more than for others. There are also separate risk classes for non-smokers and smokers.

If you’re higher risk than an average person, then you may receive a substandard rating, also referred to as a table rating, or required to pay an additional fee, called a flat extra. See below for more in-depth explanations.