When it comes to selecting individual life insurance, it’s essential to understand the differences between policy options. Helping your employees differentiate between term and whole life insurance plans can help them better prepare for the unexpected.
Term Life Insurance
Due to high coverage amounts and lower premiums, term life insurance can be beneficial for those on a smaller budget. As the name suggests, a term life insurance policy is intended to help provide financial protection for a specific period of time. Often, term policies are purchased to help during wage-earning years when expenses are usually highest.
For example, if an employee is paying for a child’s college tuition or other debt, a term life insurance policy can help cover those payments in the event of their death.
Some policies can include 10, 20, or 30-year terms. Once the initial term is over, some policies could have a “guaranteed renewable” provision. This means policyholders are automatically approved to renew without additional medical questions.
However, initial term life insurance premium rates are only guaranteed for the initial term of the policy. So, if an employee chooses to renew, their premium rate will be based on their age at the start of the new term.
Why people choose term policies:
- Lower premiums
- Higher coverage amounts for term periods
Things to consider:
- Policy ends when the term ends
- No cash value
- Rates will increase for each new term
Some whole life insurance policies offer protection up to age 121. Whole life premiums are higher than term life premiums, but whole life policies offer financial benefits that term life policies do not offer. Specifically, they accumulate cash value. The employees can withdraw this cash value with a loan, or by surrendering some of their face amount.
For whole life policies, premiums are determined by the initial issue age and will stay the same throughout the insured’s whole life. So, the earlier your employees purchase these policies, the lower their premiums.
In contrast, term policy premiums increase each time an employee applies for a new term.
Why people choose whole life policies:
- Coverage for life
- Cash value
- Guaranteed premium rates for life
- After the policy has been in force for several years, whole life is the only plan that provides the flexibility to stop paying premiums and still have some life insurance coverage in force
Things to consider:
- Higher initial premiums compared to term life policies
Did you know your employees can purchase both types of life insurance? This helps maximize both the length of time and the amount of coverage they have.
American Fidelity can help your employees select appropriate coverage options. To learn more, contact your American Fidelity account representative.
These products may contain limitations, exclusions and waiting periods. Not generally qualified benefits under Section 125 Plans.