Life insurance can be a necessity to provide financial protection for loved ones. But figuring out which type of policy to get may feel overwhelming. The good news is, finding the right policy is possible with thorough research, considering different options, and asking the right questions. Here are 4 things people should ask themselves before getting term or whole life insurance to find a plan suited for their needs.

1. What is the purpose of the policy?

Term and whole life insurance are the two major categories of life insurance policies. But it's important to compare these plans to understand which one may be best for the policyholder and their loved ones.

A term life insurance policy is designed to provide protection for a set number of years, typically between 10 and 30. The policyholder pays a set monthly premium for an agreed-upon death benefit payout if they pass during the policy's term. That death benefit is then provided tax-free to the beneficiaries as designed by the policyholder.

Term life insurance policies tend to be best for those who have financial responsibilities for a set period. For example, someone who is raising young children or taking out a business loan may have temporary financial needs.

A whole life insurance policy differs in that the policy is effective for the policyholder's whole life, assuming premiums are paid. In addition to offering a death benefit payout, these policies also accrue cash value. That makes whole life insurance policies a valuable tool for creating financial security for loved ones while saving money to use while the policyholder is alive.

2. What is the anticipated budget for monthly premiums?

The cost of a term life insurance policy is generally less than a whole life policy. That's because some of the more substantial premium payments toward whole life insurance are used for building cash value.

Before anyone begins to research life insurance policies, it's important to review their financial situation to determine how much they can afford to pay. Then, they can use that budget to drive a life insurance decision.

For example, someone may only be able to shell out a few dollars per month for a term life insurance policy right now. But years down the line, as their income increases, they could look at converting to a whole life policy and paying more in premiums each month.

3. How long will the policyholder need coverage?

Some people may find they need coverage only in the short term. For example, someone with young children may want to secure a 20-year term policy that will expire once their young children leave the house. At that point in their life, they may be financially comfortable enough to go without life insurance.

On the contrary, some may feel that lifetime coverage is a better option. This may be the case for a high-net-worth individual looking to receive the tax benefits of a whole life insurance policy.

4. How much coverage does the policyholder need?

Different types of term and whole life insurance offer vastly different amounts of coverage. The question of how much coverage to get may also go back to the purpose of the policy. For example, someone using a term life insurance policy to cover a business loan may base the coverage amount on the business loan balance.

Determining how much coverage the policyholder needs is a smart move before shopping for a policy. That's because, generally, higher coverage amounts mean higher premiums whether the policy is term or whole life insurance. So having a dollar amount for coverage in mind will make searching for the right policy easier.

The bottom line

There are a lot of things to consider before getting term or whole life insurance. But once someone defines the policy's purpose, the budget for premiums, the timeframe for coverage, and how much coverage is needed, finding the right policy becomes much more straightforward. Before committing to a policy, it's important to do research and compare options. That way, anyone can lock in the right term or whole life insurance policies at a rate that suits their unique financial situation.

Contact: carolina.darbellesv@iquanti.com