Term life versus whole life.
For many, it's an age-old question that can leave you confounded – even when you ask the experts for their opinions.
Some insist that term life insurance is the purest way to protect your loved ones from financial disaster. After all, it's the lower-cost option and the way it works is pretty straight-forward: you purchase a policy for a specific time period, and if you pass away during that time your family receives the death benefit.
Then there are those that advocate for whole life insurance, which comes at a higher price...but also offers an array of advantages that can protect your financial future as well as your family.
So which is right for you?
The answer depends on your personal and financial situation, goals and ambitions:
Your Personal and Financial Situation
It's easy to understand why most people choose term life insurance. The premiums are lower, which means you can purchase a lot more of it. It expires at some point, meaning you aren't committing a portion of your income to a monthly premium. It's a relatively simple transaction that doesn't require a lot of thought.
So if you're the type of person who wants the most affordable coverage, doesn't want to commit to permanent life insurance and doesn't even really want to think about life insurance, a term policy is probably right for you.
On the other hand, if you are the type of person who wants a life insurance policy that will ensure that your family is well-cared for and at the same time gives you an opportunity to build wealth, you probably want to take a close look at a whole life insurance policy.
When you purchase a whole life insurance policy, you're doing more than just planning for your family's future. You're actually creating an "opportunity fund."
When you make your monthly payments, your policy is accumulating a cash value (which typically earns an interest rate 2 or 3 points above what you'll get from a bank). When needed, you can "borrow" the cash value of your policy to pay for anything – from unexpected emergencies to investment opportunities.
Which is why you're going to want to take a look at your goals and ambitions.
Your Goals and Ambitions
The primary reason to secure a term life insurance policy: to address your family's financial needs in the event that you pass away. It could be for a mortgage, a financial bridge until your spouse can retire or to ensure that your children are able to attend college.
Those goals and ambitions are perfectly reasonable.
But if you aspire to greater financial success and want to ensure your family has a bright future, the reasons to purchase a whole life insurance policy are endless.
The cash value provides security, liquidity and a guaranteed payout for your loved ones. It also provides you with a tax-sheltered investment account. You can use it as a savings account (and earn more interest than you would with your money in a bank). You can use it for emergencies. You can use it for retirement.
Or you can use it as a way to invest. It's a great place to put your money when you've maxed out your 401(k) plan, IRA or Roth IRA options. It's a great way to pay for investments in your business or real estate.
In short, if you're savvy with money, have worked hard to accumulate wealth, and want to continue to do so with an alternative investment, whole life insurance just might be a way to achieve your goals and ambitions.