What is the Difference Between Term and Whole Life Policies?
There are two different kinds of life policies: term life policies and whole life policies.
Term life policies last for a predetermined amount of time, such as 10, 15, 20, 25, or 30 years. On the one hand, they will only provide death benefits if the policyholder passes away during this time. On the other hand, policyholders only need to pay premiums while the policy is in effect. Additionally, premiums tend to be lower than whole life policies’, because the insurer only needs to provide coverage for a set amount of time.
Whole life policies are designed to provide coverage for a person’s entire life, including into old age. Insurers expect to eventually pay death benefits for these policies, since they’re designed to last the policyholder’s lifetime. Therefore, the premiums for the policies are often higher than the premiums for term policies.
Whole life policies often also act as investment vehicles and retirement plans. Some of the funds that are paid into them can be put towards a number of investments, which grow over time. With some wise investment decisions, the returns that these investments provide may exceed the policy’s premiums -- and the policy may effectively pay for itself later in life.
Should Massachusetts Residents Get a Term or Whole Life Policy?
Term and whole life policies are designed for different purposes, and which one is better depends on your goals for the policy.
Term policies can be used to make sure that your family will be provided for if you pass away unexpectedly. Once the policy expires, you shouldn’t have to worry about providing an income for your family. As long as you purchase a policy with a long enough term, your children should be out of the house and self-sufficient. You and your spouse (or partner) hopefully will have saved for retirement through another means, and your investments ought to cover your better half’s living expenses if you pass away.
Whole life policies can be good options if you have extenuating circumstances, such as a handicapped child who won’t be able to provide for themselves, will need to live close to family in Massachusetts, and will rely on you for financial support their entire life. They also can be the right choice if you want to save for your own retirement through your policy rather than another vehicle.