Buying life insurance now provides a financial safety net for your dependents later if you’re not around to take care of them.
After you’re gone, your family can use the proceeds to cover funeral costs, mortgage payments, college tuition and other expenses.
There are two main types of life insurance:
Term life insurance is the easiest to understand and has the lowest prices. You can get life insurance quotes online.
Permanent insurance is more complex and tends to cost more than term, but it offers additional benefits. Whole life is the most well-known and simplest form of permanent life insurance. Other kinds of permanent life insurance include universal, variable and variable universal.
Want to know more? Let’s take a closer look at term life insurance versus whole life insurance.
Whole life insurance explained
Like all permanent life insurance policies, whole life provides lifelong coverage and includes an investment component known as the policy’s cash value. The cash value grows slowly, tax-deferred, meaning you won’t pay taxes on its gains while they’re accumulating.
You can borrow money against the account or surrender the policy for the cash. But if you don’t repay policy loans with interest, you’ll reduce your death benefit, and if you surrender the policy, you’ll no longer have coverage.
Like all permanent life insurance policies, whole life provides lifelong coverage and includes an investment component.
Although it’s more complicated than term life insurance, whole life is the most straightforward form of permanent life insurance. Here’s why:
- The premium remains the same for as long as you live
- The death benefit is guaranteed
- The cash value account grows at a guaranteed rate
Some whole life policies can also earn annual dividends, a portion of the insurer’s financial surplus. You can take the dividends in cash, leave them on deposit to earn interest or use them to decrease your premium, repay policy loans or buy additional coverage. Dividends are not guaranteed.
Article by www.nerdwallet.com[/vc_column_text]