Whole Life Insurance and Term Life Insurance are two very different products, but many individuals categorize them as one and the same. When discussing the two products, it’s easy to hear a person say: Term is good, Permanent Life is bad because the premiums are so high.
Of course, no one wants to waste their money on a higher priced product if there is a similar product available at a lower cost. However, there are significant differences between Whole Life Insurance and Term Insurance.
Whole Life Insurance
In general, Whole Life Insurance, or Permanent Life Insurance, provides lifelong living benefits coupled with a death benefit. However, properly structured Whole Life Insurance policies with a cash value, offer an individual tax benefits, liquidity, market security and a retirement income – in addition to the death benefit.
Essentially, a properly structured Whole Life Policy is like putting your money into a super savings account. Your money, sheltered inside of your insurance account grows tax-free; as you receive a steady rate of return. The more you contribute (your premium payment), the more your money builds tax free. If at any time you choose to access the liquidity from your policy, you can borrow from the insurance company with a policy loan – which is also tax free.
Paradigm Life structures Whole Life Policies that are only issued from mutual insurance companies. Unlike other savings or investment vehicles, your Policy is connected to the bond market, making it safer from volatility and loss. Because Permanent Life Insurance builds lasting growth, an individual can receive income distributions from their cash value. They can also use their cash value to invest in other performing assets that could provide additional income, like real estate.
So, when an individual points out that Whole Life is expensive insurance, it really indicates that there is a lack of understanding behind the purpose of what it is, and exactly what it can do.
Term Life Insurance
Though Term Policy Life Insurance provides a death benefit, that is the only thing it provides. Your premium payment goes to an insurance company to provide your beneficiaries with financial certainty in the event of tragedy. Having a financial fall-back plan in case you do pass away, is definitely smarter than having nothing at all, but every time a premium is paid for term insurance, it doesn’t do anything for you but grant you peace of mind.
When you pay a premium toward a Whole Life Policy, you also pay for peace of mind (you have a death benefit), but beyond that you maximize the use of your dollar.
Term also has a finite period of insurance coverage (anywhere from 10-30 years), as oppose to Whole Life Insurance, which covers you for your lifetime. If by chance you have not converted your term policy into a whole life policy before the expiration date, you will have to reapply for life insurance and let your health exam help determine the cost. This could be disastrous for individuals who purchased life insurance decades earlier with better health. If health was in decline, naturally the cost of the policy would be more.
Providing Lifelong Security
Owning a Whole Life Policy maximizes your security while you’re still alive, as well as provides your family with a death benefit when you pass. High premiums don’t really mean the cost of the insurance is more expensive, it means that you are capitalizing your dollars’ worth by allowing it to earn a rate of return – tax-free- and provide additional income.
Overall, Whole Life is worth every dollar paid to your policy.
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