Changing Term Life To Whole Life
Term life insurance policies often include a term life conversion option that allows you to convert the policy to a permanent life insurance policy. Theres a deadline for doing this, so check your policy for the conversion period. Your life insurance may have a few choices of permanent life insurance for the conversion. Or it may offer only one conversion option, and it might not be a whole life insurance policy.
Advantages Of Whole Life
- The primary benefit of whole life insurance is that it is permanent coverage and may be utilized to meet long-term requirements such as death, dying, and final burial expenses.
- The level premium lets the policy owner know precisely how much insurance will cost and offers coerced savings.
- Whole life insurance allows the policy owner to use some of their money for emergency expenses, as a supplementary retirement income source, and as other long-term care insurance.
What Is The Difference Between Term Vs Whole Life Insurance
Well give it to you straightterm life insurance works, while whole life fails. The reason is simple: The true purpose of life insurance is to replace your income if you die, and to do it as cheaply as possible. And thats exactly what term life does. But whole life? Its costly and confusing because it puts investing into the mix with insurance. It adds up to an expensive mess, which well discuss in detail below.
For now, heres the nutshell difference. Term life has a set premium that remains the same throughout the life of the policy, and it only lasts for a defined number of years. Whole life premiums can vary , last your whole life even after youre past the age when youd need a death benefit for dependents, and are over-complicated by bad investment options.
Frankly, a life insurance policy isnt a money-making scheme. Its there to provide peace of mind for your family should the unthinkable happen. Period. And thats exactly the way term life works: Its simple, affordable and reliable. Think of term life as the family bulldogyou hope youll never need him to do his thing, but youre sure as heck happy to have him around the house.
Of course, we know youre probably interested in building wealth and protecting your family along the way. And those are both legit goals! But each requires its own tool for the job, and youll see much better results with both if you keep them separate.
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When Should I Consider Permanent Life Insurance
Permanent life insurance is often selected at an early age with the intent of covering final expenses and leaving an inheritance to loved ones. Many people choose permanent life insurance to ensure their funeral costs are covered, as well as to gain more financial flexibility through the added cash value benefit. On a side note, final expense insurance can be an affordable alternative for covering your funeral costs.
In addition to the added cash benefit, whole life insurance offers set premium rates and lasts for your entire life, so you won’t have to worry about higher policy rates down the road. The same goes for a universal life policy, except you can actually change your premium payment.
If you’re still unsure what type of life insurance is right for you, talk to one of our experts at . They’ll offer advice, show you your options, and let you compare quotes.
When Should I Consider Term Life Insurance
Term life is a good way to ensure your family will have enough money to cover large expenses, such as a mortgage or a child’s tuition, if you were to die unexpectedly. For example, you could take out a 20-year term life policy while your kids are young, giving your family financial security until the kids grow up and move out of the house.
In certain situations, you may be able to convert a term life policy to a permanent life policy. Talk with one of our life insurance experts about the different options available regarding term life vs. whole/universal life insurance.
Term life is also a common choice for individuals that have taken on added debt. For example, someone who has just purchased a home might take an additional term life policy to cover the cost of the house until it is paid off. A permanent life policy alone might not be enough to pay for the home and any final expenses.
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Who Is Whole Life Insurance A Good Fit For
Whole life is right for you if you want to minimize your estate tax, want to build cash value, or have long-term dependents.
Term life insurance is the right type of policy in most cases because it offers the same amount of death benefit as whole life insurance for a fraction of the price. If youre still unsure, a Policygenius agent can help you compare the best companies and decide which type of policy is right for you.
What Is Whole Life
Whole life insurance — often known as permanent life insurance — does not expire like term insurance. Instead, the policy remains in effect for as long as the policyholder pays the premiums. As with term insurance, a death benefit is paid to the beneficiaries when the policyholder dies.
Whole life insurance also typically includes what is known as cash value. This is money from the premium that is set aside and grows tax-deferred over time at a guaranteed rate. Policyholders can use this money to pay for expenses during their lifetime, even the life insurance premiums on the policy.
People usually choose whole life because the coverage doesnt expire unless they stop paying the premiums. Some people also choose these policies because of the potential for tax-deferred cash value growth.
However, permanent life insurance policies tend to be significantly more expensive than term life insurance. Additionally, other types of investments will likely provide better growth for your money than a whole life cash value account.
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How Does Term Life Insurance Work
With this option, your insurance premiums last for as long as the term you select this can be for as little as one year and up to 30 years. Most insurance companies offer policies in increments of 5 or 10 years, so you can get coverage for 5, 10, 20 or 30 years, for example. Once the term runs out, youll have the option to continue coverage, but at a higher premium. Term policies pay death benefits to your beneficiaries if you die during the period covered by the policy.
Sometimes, it is possible to convert a term life policy into a whole life policy, but it depends on the insurance provider and their terms and conditions. Ask your advisor when considering options for life insurance.
What Is Burial Insurance
Burial insurance usually refers to a whole life insurance policy with a death benefit of from $5,000 to $25,000. As its nickname implies, people buy this type of policy to provide money for funeral and burial costs for themselves and/or family members. It is possible to buy a policy after answering a few health-related questions on the application and with no medical exam.
Premiums are payable weekly or monthly. The premium is usually collected at the policy owner’s home or workplace, and the premium is usually a small round number, such as $2 or $3 per week the death benefit is whatever that premium will buy given the insured’s current age. For example, a $3 per week premium might buy a $6,000 death benefit for a 36-year-old man or an $18,000 death benefit for a 9-year-old boy.
Burial policies may be designed to cover one person or everyone in a family.
Under some state laws, funeral homes may be licensed to sell burial insurance, but it is mainly sold through brokers and agents of insurance companies licensed to sell life insurance.
An approach that is similar to burial life insurance is pre-payment of your funeral arrangements. Under this program, you may select the funeral home, type of service, casket , flowers, headstone, burial plot, the cost of digging and filling the grave, and other items, and lock in the prices for them by paying in advance.
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How Does Permanent Life Insurance Work
Permanent life insurance provides lifelong coverage as long as you pay your premiums. No matter when you die, your beneficiary will receive the death benefit payout. The primary kinds of permanent life insurance are:
- Whole life insurance: This type of policy lasts for the lifetime of the insured party. It pays a death benefit but also has a savings component that lets cash value build, which allows you to take out a loan against your payout amount.
- Universal life insurance: This type of policy offers you the flexibility to change your death benefit and adjust your monthly premiums. Like whole life, universal life can also build cash value that you can borrow against.
Important note: If you withdraw or borrow against your policy’s cash value without repaying it, you will reduce the cash value and death benefit of your policy.
Do You Have Dependents
If youre single, you may only want enough coverage to pay for your funeral, burial, and any outstanding debts you leave behind so your loved ones dont have to foot the bill themselves.
If you have dependents, however, like kids or a spouse, youll probably want extra coverage, particularly if you contribute income to the household.
Many experts say to multiply your annual income times 10 and then add in $100,000 per child for possible college education costs.
Can I Convert My Term Life Policy To Whole Life
Some policies have the option to convert term life insurance coverage to whole life coverage. A convertible insurance policy, like American Family Life Insurance Companys DreamSecure Term Life Insurance, allows you to convert a portion or all of your existing term life insurance policy during the conversion eligibility period.
You can do this without having to take a medical exam or go through other screening that could affect your eligibility. This conversion option delivers the benefit of starting with a less expensive term life insurance policy , while still being able to convert to a long-term policy later if your insurance needs and financial means change.
Looking for even more flexibility? Learn about DreamSecure Flexible Life Insurance, which offers long-term protection while giving you the ability to change your policy as your life changes.
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Should I Buy Term Or Whole Life Insurance If I Have A Special Needs Child
Preparing a financial plan that will take care of a special needs child after youre gone requires the help of a good financial planner. Youll likely name a guardian, prepare trust documents and consider how to fund the trust.
Types of permanent life insurance are generally used to fund trusts. Term life insurance is not appropriate in these cases. Having professional guidance is crucial in developing the right financial plan and identifying the right policy type.
Which Costs More: Whole Life Or Universal Life Insurance
Whole life insurance costs more than universal life because of all its guarantees. As a general rule, you will pay about twice as much for whole life vs. universal life insurance.
Heres an example of what we found by averaging monthly whole life and universal life insurance premiums for men and women in good health who dont use tobacco.
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Compare Life Insurance Providers Quickly And Easily
See which provider is right for you.
Whole life insurance combines life insurance with an investment component.
- Coverage for life
- Tax-deferred savings benefit if premiums are paid
- 3 variations of permanent insurance: whole life, universal life and variable life include investment component
Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time.
- Fixed premium over term
- Outliving policy or policy cancellation results in no money back
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Can Whole Life Insurance Help You Create A Legacy
Yes, whole life insurance can help you leave behind a legacy/inheritance for your family. This is because the whole life policies cover you till the age of 99. If the insured person dies before this age, the beneficiaries of his life insurance policy will get the sum assured. Insurance payouts are also exempt from tax under Section 10.#
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The Pros And Cons Of Term Life Vs Whole Life Insurance
Another way to think about the difference between term life and whole life insurance is to compare it to buying or renting your home. With each option, you get a place to live. But when you rent , eventually, you will stop paying rent and you will no longer live in your rental. When you buy a home you could decide to keep your home and live in it forever â even after itâs paid off. In addition, youâll be building equity that you could turn into cash through a loan or by someday selling your home.1
Here, weâll dive deep into the features of term and whole life insurance to help you determine the best way to financially protect your family.
What Happens At The End Of Term Life Insurance
Generally, when term life insurance expires, the policy simply expires, and no action needs to be taken by the policyholder. A notice is sent by the insurance carrier that the policy is no longer in effect, the policyholder stops paying the premiums, and there is no longer any potential death benefit.
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How Much Does Whole Life Insurance Cost
The cost of whole life insurance is often overestimated, and it may be less expensive than you think. The following are some factors that play a big role in determining your whole life insurance premium:
- Coverage amount
Typically, the younger and healthier you are, the lower your whole life insurance rate will be. To learn more, talk to your agent about what the cost of whole life insurance would be for you. You can also get a quick estimate by using our Life Insurance Calculator.
Choose Whole Life If You:
Can comfortably afford the higher premiums. Whole life insurance is a lifelong commitment, so you want to make sure you can afford it. If you miss your premium payments, your policy could lapse.
Want to leave money for your heirs. The death benefit from whole life policies can potentially be used as an inheritance. If you name life insurance beneficiaries on your policy, the payout will go directly to them and not through your estate.
Have a lifelong dependent like a child with disabilities. Life insurance can fund a trust to provide care for your child after youre gone. Consult with an attorney and financial advisor before setting up a trust.
Want life insurance that builds guaranteed cash value. The cash value of whole life policies grows at a guaranteed rate set by the insurer.
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The Benefits Of Term Life Insurance
Get a term life insurance quote
Want term life insurance?
- Low initial cost. Term insurance can be purchased in large amounts for relatively small premiums.
- You can match term insurance to needs, just like whole life. Many people are concerned about paying off their mortgage, providing money for higher education or replacing a portion of their income if they pass away. These are typically temporary needs, which may last just a few years, or much longer. Matching these needs, with the proper amount of insurance, can allow your loved ones the time, and money, needed to make important financial decisions.
- Convertible. Most term policies can be converted to a whole life policy if your temporary needs evolve into lifetime needs.
Term Life Insurance Vs Convertible Term Life Insurance
Convertible term life insurance is a term life policy that includes a conversion rider. The rider guarantees the right to convert an in-force term policyor one about to expireto a permanent plan without going through underwriting or proving insurability. The conversion rider should allow you to convert to any permanent policy the insurance company offers with no restrictions.
The primary features of the rider are maintaining the original health rating of the term policy upon conversion, even if you later have health issues or become uninsurable, and deciding when and how much of the coverage to convert. The basis for the premium of the new permanent policy is your age at conversion.
Of course, overall premiums will increase significantly since whole life insurance is more expensive than term life insurance. The advantage is the guaranteed approval without a medical exam. Medical conditions that develop during the term life period cannot adjust premiums upward. However, the company may require limited or full underwriting if you want to add additional riders to the new policy, such as a long-term care rider.