It can be difficult to decide whether to buy whole life insurance or level term insurance coverage. Much depends on disposable income, the term of the policy, inheritance tax planning and whether life insurance with cash value is required. Permanent life insurance is the more comprehensive option, but it does cost substantially more, especially if applied for later in life. Term coverage is usually sufficient for people who are seeking to protect a young family bills and debts in the event of a sudden loss of income. Read also: How to Determine How Much Life Insurance You Need.
Term vs Whole Life Insurance Plan
Level term insurance provides coverage for a defined number of years. For example, provided that the premiums are maintained, a joint policy will pay-out a valuable cash lump sum to the surviving spouse for a period of 20-years. Should that person pass away a week after the policy has lapsed, they will receive nothing. People often to choose to buy whole life insurance policies so that a beneficiary will receive a substantial sum of money regardless of when the insured passes away.
verage for a finite period of time, usually when the likelihood of mortality is low. The cost of a whole life insurance plan increases with every passing year. In order to ensure that the premium remains relatively affordable in the latter years of the policy and that there is enough money set aside for when it needs to pay out, a substantial portion of each premium is invested. This means that it is a form of life insurance with cash value should it ever need to be surrendered. Although it doesn't provide a satisfactory return as a pure investment, unlike a term policy, it does offer a financial return. Read also: Understanding Your Life Insurance Options.
Buy Whole Life Insurance for Inheritance Tax Planning
A whole life policy is regularly used to move money outside of the insured's estate to avoid the payment of inheritance tax. This is achieved by ensuring that the beneficiary is a third party, such as a family member, close friend or charitable organization. The earlier that this type of tax planning is commenced, the more affordable the premiums will be. Cost has a huge bearing on whether this variety of planning is feasible, especially if the insured is asset rich and cash poor.
Level Term or a Whole of Life Insurance Policy?
It can be difficult to decide which type of coverage to take out. According to Ginger Applegarth of MSN Money: "Most people drop their policies within the first 10 years, but if you do your homework now, that shouldn't be the case for you." If the intention is to take out a policy for a period of more than 20 years, conventional wisdom tells us that it is advisable to buy whole life insurance with cash value. A level term policy is of no help with inheritance tax planning, but it is useful for those seeking to protect their families from bills and mortgage debt for a defined period of time. Read also: How much is Your Life Worth? Life Insurance Protects Your Family.