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.
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.
Term vs. whole life insurance
- Term life insurance is easier to understand and costs much less than whole life insurance, but it has an end date. A 30-year policy is typically the longest term available, depending on your age.
- Whole life insurance will last the rest of your life, so your beneficiaries are guaranteed a payout no matter when you die.
- Whole life insurance also builds up “cash value,” which is money you can access while you’re alive. Term life has no cash value.
Let’s take a closer look at term life versus whole life insurance.
Term life insurance explained
Term life insurance provides coverage for a certain time period. It’s often called “pure life insurance” because it’s designed only to protect your dependents in case you die prematurely. If you have a term policy and die within the term, your beneficiaries receive the payout. The policy has no other value.
You choose the term when you buy the policy. Common terms are 10, 20 or 30 years. With most policies, the payout, called the death benefit, and the cost, or premium, stay the same throughout the term.