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Whole life vs term life insurance12/22/2023 ![]() ![]() There’s no deadline to back the loan, and repayment doesn’t get reported to the credit bureaus. You can borrow against your accumulated cash value without undergoing a credit check or formal underwriting (the process an insurer uses to rate your age, health and other factors, and determine your costs for coverage). (Note that Prudential offers different types of universal and variable life policies but not whole life.) This differentiates whole life insurance from other types of permanent policies, such as universal life, which allows you to change your premium payment amounts, and variable life, which lets you invest in mutual fund-like accounts. ![]() That may mean a guaranteed interest rate (of around 1% to 2%) or dividends (that may or may not be guaranteed). Premium payments are fixed throughout the life of the policy (as long as they’re paid), and a portion of each payment builds cash value according to the insurance company’s formula. Whole life insurance also has a cash value accumulation. Rather than lasting for a set period, whole life (and permanent life in general) covers you for as long as you keep paying the premiums. While there are several types of permanent life insurance, whole life insurance is the most common. Many term life insurance policies are also “convertible”: You can switch to a permanent policy during a specific time frame without having to take a medical exam. For example, an accidental death benefit rider pays out an additional amount if you die in an accident. However, you can also add optional features called riders-for an additional cost-when you buy your policy. Term life insurance tends to be the more affordable choice. ![]() (You may be able to extend a term policy, but the cost would depend on your age and health at the time.) At that point, the idea is that you‘d be in a more secure financial position-for example, your house is paid off or your kids are grown. If you outlive your policy, it expires and no money is paid out. That money can be used for just about anything, from funeral costs to child care to mortgage payments. If you die during the policy period, your beneficiaries receive a payout, known as a death benefit. Term insurance is just what it sounds like-a policy that lasts for a specific time period, such as 10, 20 or 30 years. That’s where term life insurance can help. If you were to die, you want your family to be able to manage financially. Or you’re the breadwinner in a family with young children. Maybe you’re paying down an expensive mortgage. There are certain times in your life when you may be especially interested in protecting loved ones’ finances in case you die prematurely. ![]()
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