At some point, we all need a safety net, which is why we shell out our hard-earned cash every month for health, car and even home-owner’s insurance. But now that you’re sharing a life with someone, you want to make sure your partner has something to fall back on should something happen to you. Ultimately, knowing your other half will be okay -- just in case -- can give you peace of mind. And that’s where life insurance comes into play. Even though it’s kind of freaky to think about the “what if’s,” choosing the right type of life insurance is really important. Luckily, there are only two basic categories to choose from when it comes to life insurance -- whole and term. Here’s how to decide which one is right for you and your partner.
The majority of people opt for term life insurance, simply because it’s more affordable. The reality is many people, especially in today's economy, can’t afford whole life insurance. Term life insurance comes with lower premiums and covers the individual for a specific period of time, which can be anywhere from one year to 30 years. If the person doesn't die within that period, the policy has to be renewed. Term policies just provide life coverage. (Translation: When the insured person dies, the beneficiary gets the amount stated in the policy -- no more, no less.) The downside? If you outlive your policy, you lose all the money you invested. In theory, term life insurance is meant to provide temporary security for those individuals with children, high-risk jobs and health problems, who can’t afford whole term insurance. Watch out because some companies will increase the premiums every year, so you might want to look for a policy whose rates will stay the same for a set number of years. (Your health will also likely play a role in the rate you secure.)
Whole policies, however, are more expensive (read: higher premiums), but they also offer more. Like term policies, they include death benefits, but they also offer the ability to make your policy grow by investing the money in bonds, stocks or money-markets. Then you can also borrow against the cash value of the policy if you choose. Also, if you survive the period covered by the policy, you get back a portion of what you paid back and in some cases more, if your investments paid off. There are different varieties of whole insurance, including non-participating, participating, indeterminate premium, level premium, limited payment and single premium. So if you decide to go down that route, you’ll want to do some research.
When choosing between term and whole life insurance it’s important to think about your finances and how much coverage your partner (and potentially children) will need both now and in the future. Some experts say whole policies aren’t great investment tools and the returns aren’t worth the extra costs. So it may make more sense to go with a term policy and invest the money you save elsewhere. But if you are choosing to be covered by this specific policy for more than 20 years and can afford the higher premiums, a whole life insurance policy is often your best bet. If you’re planning to keep the policy for only 10 years, go for term. But if you’re shooting for somewhere in between, it makes sense to ask a professional to run an analysis for you, to see which will prove to be the best use of your money.