Whole Life vs Term Insurance or Maybe a Third Option

15
Jan

Whole Life vs Term Insurance or Maybe a Third Option

Which type of Life Insurance should I buy, Whole or Term?

It’s a never-ending debate amongst financial advisors and self-proclaimed experts. Today, we’d like to suggest a third option.

But first… let’s summarize the two most popular and obvious choices:

Term life insurance allows the insured to afford more coverage for less premium, thus putting greater protection in place, in the form of a death benefit. However, term life insurance policies rarely provide a benefit, because they only provide coverage for a certain period of time and typically expire (like product warranties) before they’re likely to ever be used.

Like most other insurances, term life is an “if” insurance, not a “when” insurance. A benefit is paid only IF your house burns down, your car is vandalized, or someone passes away long before expected.

Whole life insurance, on the other hand, is a “when” insurance. It is a permanent policy that allows the policyholder to build liquidity in the form of savings while building equity in a life insurance policy that will provide a benefit WHEN the insured passes. Purchased through a mutual insurance company, such policies have a long history of paying dividends, provide tax-advantaged growth, and an option to borrow against the equity in the policy.

Sometimes insurance policies are compared to a home that you can either buy or rent. Term insurance is like renting life insurance; you only get to keep it for a certain term, and when that term expires, you no longer have it.  With whole life, as soon as you make your first premium payment, you’ve begun the process of “buying” the whole asset. This is similar to the way you purchase a home by making your first mortgage payment.

But there’s a third option when it comes to both homes and life insurance policies…

Some people find a home they can “rent to own.” In this arrangement, you, the lessee, would rent the home while securing an option to buy it at a later date. In a lease-to-own agreement, you don’t HAVE to buy it, but you CAN if you choose to.  You know you want to buy a home soon, and you’re getting ready.

Did you know that you can “rent to own” a life insurance policy, too?

These types of policies are known as convertible term life insurance. A convertible term policy gives the insured an option to covert a term policy to a permanent, whole life policy at a later date.

A convertible term policy is typically a level term life insurance policy (with a level death benefit for a specific term or length of time, such as $500,000 for 15 years), and all or part of it can be converted within a specified time frame. You can apply for a convertible term policy today, put it into place in 4-8 weeks, and decide later if and when you’d like to convert it to a whole life policy… without having to re-qualify.

To learn if convertible term insurance is a good fit for you read https://premiertrustadvisors.com/term-or-whole-life-the-third-option/#more-1311

https://premiertrustadvisors.com/term-or-whole-life-the-third-option/#more-1311