When it comes to choosing a life insurance policy, individuals have a plethora of choices. Policies have different coverages, limits and premiums, and many have riders that policyholders can use to customize the policy to their specific needs. If you’re looking for a policy, though, one of the first questions you’ll have to answer is whether you want a whole or term policy. If you call almost any independent insurance agent serving Wayland, Massachusetts, this is likely one of their first distinctions they’ll mention.
Wayland Residents: Do You Know the Differences Between Term and Whole Life Insurance?
The Similarities Between Whole and Term Life Insurance Policies
Whole and term policies have several significant differences, but it’s first important to note that they have key similarities. Both whole and term policies will provide your beneficiaries with a set payout If you pass away while the policy is in effect (and your cause of death is covered under the policy’s conditions; policies may exclude certain causes). This is the heart of what life insurance is meant to do. It provides your beneficiaries with financial resources if you’re unable to because you pass away.
Whole Life Policies Last Longer Than Term Life Policies
One of the most significant differences between whole and term policies is how long they last. In fact, it’s this difference that gives the two kinds of policies their names.
Whole life policies are meant to be in effect for your whole life, providing you coverage for as long as you live. From the day you get the policy until the day you pass away, this kind of policy should provide you with coverage, as long as you pay your premiums.
Term life policies are only in effect for a predetermined amount of time, or a term. Common terms are 10, 15, 20, 25 and 30 years, although insurers can write policies for any amount of time they like. Once a term life policies’ term is up, the policy is no longer in effect. It no longer provides coverage, but you also don’t have to continue paying premiums (which you do with a whole life policy).
Whole Life Policies Include Investment Options
Another important difference is what whole and term policies include. Term policies only provide insurance. They serve no other purpose, remaining true to the main purpose of the policy.
Whole life policies, in contrast, act as both an insurance plan and an investment vehicle. With a whole life policy, part of the premiums you pay are diverted toward an investment account, which gains cash value. Eventually, you may be able to draw dividends from this investment account or use it to pay your premiums.
Term Life Policies Usually Have Lower Premiums
Since whole and term policies have key differences, they also usually have different premiums. In general, term life policies that are available to Wayland residents have lower premiums than whole life policies. There are a couple of reasons for this. Term life policies don’t usually provide coverage for as long, and they don’t include an investment aspect.
The difference in premiums, however, can be misleading. Although term life policies typically have lower premiums, they don’t gain cash value and don’t have investment accounts that can one day be used to pay the premiums, which whole life policies do.
Consult an Agent Serving Wayland
For help deciding between a whole and term life policy, consult an agent who offers both and is serving Wayland. The agent you contact will be able to help you go through several scenarios and decide which type of life insurance is better for you.