Whichever policy you choose, having a sound succession plan offers the kind of peace of mind that will allow you and your family to navigate financial challenges with more confidence and less concern.
When you look at the different policies and all the ways they can be set up, purchasing life insurance can be confusing. Although the reasons for setting up a policy can vary from person to person, there are generally only two types to be familiar with: Whole Life and Term.
The difference between whole life and term policies can compare to owning a home versus renting one. When you own a property, you have access to everything such as a roof over your head, a place to cook, safety, and comfort for as long as you own the property. Comparatively, when you rent a home, you get all of the same benefits, but only for a specified amount of time. With ownership, you can keep or sell the property as you please. With renting, when it’s time to move on, that’s it; you don’t get back anything that you may have put in.
Similar to owning versus renting property, a whole life insurance policy offers you the security and comfort of consistently having a roof over your head, so to speak, just like home ownership does. You also have the cover for life if you keep up with payments. Furthermore, a whole life policy builds cash value over time, which is available to you to borrow from if you ever need funds. You can even cash out and get back a great portion of what you have put into the policy when you no longer need it, just like selling your home.
On the other hand, like renting a home, a term policy provides access to all the benefits associated with having a roof over your head etc., but once your specified term is up, the cover disappears and you would have to move on to something else. However, the beauty of term insurance is in its value for money – it is by far one of the most affordable, comprehensive, and cost-effective ways to protect one’s assets and liabilities.
Once you’ve got a good understanding of the terminology, you may begin to wonder, which am I supposed to choose? Although everyone’s financial situation and needs are unique, the best answer is usually both. A combination of the two maximizes the umbrella of cover while maintaining your cash outflows for other obligations, and minimizes the costs associated with having enough cover. Because term life is cheaper than whole of life, when you pair them together, you’re ensuring all scenarios are covered in the best way possible.
You might use your term policy to protect specific financial obligations for a specified amount of time. A notable example of this would be a mortgage. If you have a 30-year mortgage you could get a 30-year term for the outstanding amount of the mortgage. That way, if anything were to happen to you, the outstanding balance on your mortgage would not be an issue for your beneficiaries because it would be covered by the policy. If you outlive the policy, the cover disappears, but that’s fine because you should have finished paying off the house at that point anyway; you no longer need the cover. This works out beautifully in this and similar scenarios, but it doesn’t solve the problem of expenses further down the road. This is where a whole of life policy will come into play.
With Whole Life, the policy is for life and will continue for as long as you live; it’s available for whatever challenges and major outlays may come your way. Unexpected expenses aside, everyone will also need a funeral eventually, and the earlier you prepare for it the more affordable it will be. Although a whole of life policy tends to be more expensive due to the cash value component, it’s this feature that is by far one of the greatest benefits. With Whole Life, you benefit from longevity – the longer you keep the policy in place, the more money that will be available to you when you need it. In addition, the longer you live, the greater the benefit; a whole life policy is a gift that keeps on giving, both while you’re alive as well as after your death.
At the end of the day, whichever policy or combination of policies you choose, having a sound succession plan in place offers the kind of peace of mind that will allow you and your family to navigate financial challenges with more confidence and less concern. Perhaps now is the right time to establish the best plan for you and your loved ones.