If you have dependents or anybody that depends on you financially, then choosing the right type of life insurance policy to fit your circumstances is a necessity. Term and whole-life insurance are the two major policies that most people under 50 years old will opt for; however, they have different terms and conditions that set them apart from each other. Below, we’ll discuss the key differences between the two so you’re equipped with the knowledge you need to make an informed decision on the best coverage for you.
Term Life Insurance
This type of life insurance policy is usually the cheapest one and is designed to pay out if you pass away within a specified term. If the policyholder does not pass away until after the end of the term, then the policy becomes void and there will be no lump sum payment at the end of the policy, but the policyholder will be given the option to let their coverage expire or they can renew their policy. Term assurance will cover you for anywhere between 10 and 30 years, so choosing the perfect coverage will depend on what you want to be covered by your policy. Premiums will typically stay the same throughout the duration of the policy, depending on the different types:
- Level-term assurance: The cover amount will stay the same throughout the duration of the policy until the policyholder passes away. It can be a great option if you would like it to cover ongoing costs and living expenses.
- Decreasing Term Assurance: This policy type will pay out less over time. It can most commonly be used for things such as mortgage payments, as the balance of a mortgage also becomes smaller over time.
- Renewable Term Assurance: This is optional and enables the policyholder to renew their term assurance at the end of the term instead of taking out a new policy, providing you with guaranteed insurance.
Whole of Life Insurance
This differs from term assurance, as its purpose is to provide coverage for the whole of the policyholder’s life with a guaranteed payout once they pass away. It can, however, round up as one of the more expensive options when it comes to life coverage, and you will have to pay your monthly premium for the rest of your life to keep the coverage active. It’s typically best suited to those who are slightly older and in good physical health. This type of policy also has a cash value that can be accumulated over time and may take up to 5 years before it has any cash value, as part of your payments goes towards savings.
Key Differences
Whole of Life Insurance:
- A pay out occurs if the policyholder passes away within the specified term.
- Pay your premium on a monthly basis. May not come with terminal illness cover.
- Coverage lasts forever. Premium rates are generally more expensive for whole-life insurance.
- Can be taken out as joint coverage.
- Typically taken out for: Inheritance Funeral costs Maintaining a standard of living for your family after you have passed away.
Term Life Insurance:
- Guaranteed pay out when the policyholder passes away.
- Pay your premium on a monthly basis.
- Terminal illness coverage is included as a standard part of this policy.
- Cover may end before there is any payout if the policyholder outlives the term specified.
- Premium rates tend to be cheaper for term assurance.
- Can be taken out as joint coverage.
- Typically taken out for: Mortgage repayments, Paying off ongoing expenses, Paying off ongoing debts, Living costs for your family, Childcare costs etc.
To conclude, depending on your needs and financial situation, you can assess which type of life insurance policy would be the best option for you. You can also take out more than one policy at a time, meaning you’ll have different types of coverage with changes in circumstances such as your finances or if you have a growing family. This may urge you to take a look at different options. Through our services, we can help you determine and understand the best type of coverage for your situation.
