As MSN Money reports, choosing the wrong life insurance policies can have disastrous consequences for your personal finances. Dealing with death is never easy, and funeral and burial costs for a loved one can throw a metaphorical wrench into a family’s plans when it comes to plundering savings and spending accounts. Still, Canadians purchased almost 700,000 individual life insurance policies in 2012 alone. It’s a smart move, lining up protection for your family against the worst of all unforeseeable circumstances.
When it comes to life insurance policies, there are two main types to choose from — whole life and term life. Both are pretty self-explanatory based on their names. But there are a few key differences that set these plans apart from each other. In order to make the right choice for your family, it’s best to understand exactly what those are.
Whole Life Insurance
The Benefits: As its name implies, this kind of life insurance doesn’t ever expire. It’s good for life, which means both you and your family are protected for the duration of your time on this planet. And during that time, you’re able to build up a savings account (also called “cash value”) that’s guarded from taxes until you’re ready to access it. This can act as a supplementary retirement fund — one that you’re in complete control of.
The Drawbacks: Because it provides such great coverage, a life insurance policy like this can be quite expensive right off the bat. The initial premiums are much higher than they would be for a term policy, though they should never increase, meaning you’ll pay the same throughout the duration of your life.
Term Life Insurance
The Benefits: Term life isn’t permanent, which makes it ideal for short-term circumstances. Say you need to supplement your insurance coverage because you don’t get as much coverage through your job as you were hoping. Term life plans can do that in addition to easing the financial burden on your family should you meet an untimely end. Plus, these short-term plans are more affordable than whole life policies, plain and simple.
The Drawbacks: You’ll get cheaper life insurance rates, but that savings comes at a cost. In this case, that cost is you not building up any kind of cash value over time. Plus, these plans always come with expiration dates, which means your coverage runs out when your plan reaches its expiration date.
Of course, every policy is different and every family requires a certain set of considerations to be met. The best way to find out if either of these plans is right for you is to get in contact with an agent. You can likely find an agency right in your area, or look online for more information. More research here.