William Penn Life, 2019 (54. évfolyam, 2-5. szám)

2019-04-01 / 4. szám

Moneywise with Bob Bisceglio, National Sales Director

Whole life vs. term insurance

MY YOUNGER BROTHER, Jim, recently mentioned to me that, as a newly appointed fraternal agent, he has been getting quite a few questions about the differences between term and whole life insurance. Some of the questions even developed into "heated" discussions regarding which one was best to have—term or whole life.

My first thought was: "Don't you read my articles?" Or, as my father would say: "Haven't I taught you anything?"

But, seriously, Jim's comments made me realize it's been quite a while since I've written about the basics of life insurance, and that a review of the differences between term and whole life insurance might be helpful to many of you. This is a topic that those of us in the business take for granted, forgetting that many people just don't fully understand it. So, this month, I'll do my best to explain some of the basic differences and review the benefits of each.

Term Life Insurance provides life insurance coverage for a certain period of time, or "term." Term is often called "pure life insurance" because it is designed only to pay out if you should die prematurely during the "term" or coverage period. If you have a term policy and die within the term, your beneficiaries receive the face amount. The policy has no other value.

With term insurance, you typically choose the length of term for which coverage is desired. Typical term periods offer coverage for one, 10,20 or 30 years. With most policies, the payout-called the "death benefit"-stays the same throughout the term. The premiums you pay also stay the same throughout the term, with one exception. "Annual Renewable Term" certificates, as the name implies, are renewed each year, and the premiums you pay increase each year you renew the certificate. For all other term certificates, your premium remains the same for the entire term of coverage.

There are typically age limits for purchasing term insurance. For example, at William Penn Association, the maximum age at which you can purchase the 10-Year Term is 70. For our 20-Year Term, the maximum age is 60; and for WPA's 30-Year Term, the maximum age is 50 (or 45 for tobacco users).

Conversion to whole life insurance and end-of-term options are typically available as well. The WPA 10, 20 and 30-Year Term plans are convertible prior to age 75 to any permanent plan of life insurance currently offered by the Association.

You should also consider the following when shopping for term insurance:

• Choose a term that coincides with the number of years during which you'll have major financial responsibilities (e.g., care of minor children, a home mortgage, college-related debt and expenses, basic costs of living for your family, etc.). In general, the younger you are, the longer your term of coverage should be.

• Purchase an amount your family would need if you were no longer there to provide for them. This goes for both parents. Should you die prematurely, the payout

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could be used to replace your income for a period of time and help your family pay for the services you provide to the family, such as child care.

• Term insurance is the most common life insurance benefit provided by an employer and typically expires when you retire or your employment otherwise ends.

In a perfect world, your family's need for life insurance would end around the time the term expires: your kids will be on their own, your mortgage will be paid off and you'll have plenty of money saved for retirement. But, as we all know, we don't live in a perfect world. That's why it's important to review your needs on a regular basis to be sure your insurance is doing what you want.

Whole Life Insurance, also called "permanent" life insurance, provides coverage for your entire life.

Whole life plans include a savings component known as the policy's "cash value." A portion of your premium payments are returned to the policy each year, and that amount typically increases annually as the policy ages.

This cash value grows tax-deferred, meaning that you won't have to pay taxes on any gains while the cash value is accumulating.

You can borrow money against this cash value or surrender the policy for cash at any time. Keep in mind, however, that if you don't repay the policy loan and interest, the amount you owe will be deducted from the death benefit amount (or the cash value should you surrender the policy). Also, if you surrender the certificate for its full cash value, all life insurance coverage will cease.

Although more complicated than term life insurance, whole life is the most straightforward form of permanent life insurance. Here's why:

• Your premiums remain the same for as long as you live.

• The death benefit is guaranteed.

• The cash value grows at a guaranteed rate.

• There is the possibility of more growth if the certificate qualifies for annual dividends. Dividends are a

4 0 April 2019 0 WILLIAM PENN LIFE