Know the Difference

If you are making plans for a new year it’s a great idea to include adding a new life insurance policy or taking time to review your current policy with a view to upgrading your coverage. Understanding the difference between whole and term life insurance will help you decide what coverage is best suited to your family’s needs.

There are variables in life insurance just as there are in homeowners insurance or auto insurance. Depending on your personal circumstances, either term or whole life insurance may have benefits to suit you and there is ongoing debate on the issue of term life insurance versus whole life policies. Some considerations would be marital status, home ownership, budget and the length of time you need to be covered by a new life insurance policy.

An understanding of the differences between term life and whole life insurance is necessary to making a good choice for your family’s protection.

Lincoln Whole Life Insurance – How it Works

Pros:

  • Both death benefits and a cash value component are included in whole life insurance. The cash value is created by investments made by the insurance company. By investing a portion of your premium, the company creates a growing cash value that you can borrow against or use as collateral for a bank loan.
  • The premium and death benefit do not change over the term of the whole life insurance policy.
  • The policy is in effect until you death even though all premiums have been paid.

Cons:

  • Whole life insurance premiums are higher than premiums for term life policies.
  • The policy holder has no control over the investments made or over how much of the premium is invested by the insurer.
  • Cash value of the whole life insurance policy could be negatively affected by bad market conditions but might also profit in a booming economy. Your financial adviser can run an internal rate of return for your policy to provide a comparison with other investment options.
  • Cash value accrues over time and it may be 10 years or more before you have a cash value returns even with sound investments by the insurer.

Types of Whole Life Insurance:

  • Traditional – There is a minimum guaranteed return on investment
  • Interest-sensitive – Your death benefit is based on an interest rate that varies and will rise in a good economy but fall during a recession. This policy type is not recommended at this time due to the current lack of economic growth in the US.
  • Single-premium – If you can afford to pay the full premium on a whole life policy with one payment you will increase the cash return of this whole life policy. Clearly, this option is only for those with the financial resources and income level to make such a large payment.

Lincoln Term Life Insurance – How It Works

Pros:

  • For consumers under the age of 40, term life insurance has significantly lower premiums than whole life insurance.
  • Term life policies are flexible, allowing the buyer to choose the length of time the policy will be in effect. Term life insurance can be purchased for a term of 1 year to as long as 30 years.
  • With an option to renew the policy when the term expires you are guaranteed the ability to obtain coverage even at an advanced age though premiums may increase substantially upon renewal.

Cons:

  • No cash value accrues in a term life insurance policy
  • If you fail to renew during the window of time allotted, there will be no death benefits for all the money you paid out over the term of the insurance coverage.

Types of Term Life Insurance:

  • Level Term – The death benefit does not change during the life of this most popular term life policy.
  • Decreasing Term – As the policy reaches the end of the term, there is a decrease in the death benefit that most often occurs annually. The decreasing term policy is the least costly term insurance.

Other Considerations – Term vs. Whole Life Insurance

Plan your attack by comparing term life insurance to whole life policies. Determine how much coverage you need to protect your family’s financial future, what premium level you can afford and how long the insurance will be needed.

Some questions to ask your insurance agent include:

  • Will the premium be fixed or fluctuate during the time the insurance policy is in force?
  • Will a medical examination be required to renew your policy?
  • If you choose the lower cost of a term life insurance policy, can it be converted to whole life insurance in the future?

Find out which type of insurance will work best for your situation, term or whole life insurance. Get your free Lincoln life insurance quotes today!