As a first-time father, one new responsibility is helping your partner plan your child’s future. In this post, we’ll compare the benefits of term vs. whole life insurance when it comes to creating financial security for your family.
Next to the birth of your child, your first Father’s Day will produce some of your best memories as a parent.
And, as you look into the eyes of your bundle of joy and contemplate your growing family’s future, it’s only natural to consider the possibility of financial uncertainty as the economy and your circumstances may change over the years.
Your parental instinct to protect your loved ones may kick into overdrive—and that’s normal.
One way to help alleviate much of that concern is to develop a plan to ensure your family’s future financial health—and that includes finding the right term life insurance or whole life insurance policy. Life insurance for parents may seem complicated, but we’re here to help you compare term vs. whole life insurance to find the best fit for your family. First, let me define these terms.
» Compare: Term life insurance quotes online
What Is Whole Life Insurance?
Just like the name says, whole life insurance provides coverage for your whole life. It builds up value, which you can borrow against or withdraw from over the years when needed based on the premiums that you’ve paid.
While that sounds like a benefit to having this kind of coverage, the premiums for whole life insurance are often very expensive—even if you are young and in great health. Insurers look at age and health to determine their risk in insuring you. So, the healthier and younger you are, the lower the probability of paying a death benefit any time soon and this makes you an attractive applicant.
And, unlike term life, whole life insurance isn’t designed to drop off when you no longer need the coverage (unless you just stop paying it).
If, for example, your son or daughter graduates from college and becomes well-established in their career early on, then you may need less insurance since they’re now sell-sufficient and have their own steady income and savings.
And, like term life insurance, if you purchase a whole life insurance policy your coverage amount and premiums will stay the same as long as your policy is kept current (meaning your premiums are paid up).
There are some circumstances when comparing term life vs. whole life insurance that will lead you to decide that a whole life policy makes sense—such as if you have a large estate or a child with special needs who will require financial protection for their entire lives.
However, for most people that we work with, we find that term life insurance is a better fit for them.
What Is Term Life Insurance?
Term life insurance is much more flexible than whole life insurance when it comes to meeting the needs of growing families.
Term life insurance can be purchased in terms of 10, 15, 20, 25, 30, and 35 years. When looking at term life vs. whole life insurance, it’s important to remember that it is unlikely that you’ll need the same amount of coverage throughout your family’s life together. For most families, insurance needs will differ over the years.
» Calculate: Life insurance needs calculator
Plus, you can purchase multiple term life policies at once to customize your coverage.
With a term life insurance plan, you can purchase one policy to cover your child through college (and with the average college tuition reaching $40k in 18 years, that’s important) and another to provide protection for your spouse or partner through retirement, should you unexpectedly pass away. This method of purchasing more than one policy at once is called laddering. It allows you to take advantage of the low rates available to you when you are younger to buy excellent coverage for decades for the same affordable premiums.
Finally, term life insurance rates are highly affordable.
When looking at term life vs. whole life insurance, most people overestimate the costs of term life insurance (perhaps based on quotes that they’ve seen for whole life insurance). It’s possible to find the right life insurance for parents that will meet most family’s needs for well under the cost of your daily cup of joe.
For example, a $500,000 policy may cost a healthy 30-year-old male non-smoker as little as $20 per month.
The loss of your income can have a devastating impact on your family’s standard of living—but it doesn’t have to.
Term Life vs. Whole Life Insurance: Making the Right Choice
So how do you make the right choice when looking at term life vs. whole life insurance? While here at Quotacy we believe that term life policies are the best options for the majority of families, you’ll still need to consider your family’s specific circumstances when deciding between term life insurance and a whole life plan.
First, let’s take a look at why, as a new dad, being aware of the benefits of term life vs. whole life insurance is so important at this point in your life.
Why New Dads Need the Best Life Insurance Early On
Life insurance is your family’s safety net. If the unthinkable were to happen, and you were to pass away unexpectedly, your family would likely experience a loss of income and have to handle a variety of expenses which can potentially have a significant impact on your savings.
A term life insurance policy provides a lump sum cash payout to your family, known as a death benefit. They won’t have to pay taxes on this money, and this can help cover end-of-life expenses such as:
- Funeral and Burial Costs – Your funeral and burial may cost your family up to $10,000 depending on the type of funeral that they select (or that’s stated in your will).
- Legal Fees and Probate Costs – Your family may have to pay probate costs, based on how your will is structured. These fees may be up to 8% of the total value of your estate. Legal fees from any attorneys managing other duties related to the administration of your estate can also be costly.
In addition, a term life policy will:
Maintain your family’s standard of living. The loss of your income can have a devastating impact on your family’s standard of living—but it doesn’t have to. Your term life policy can provide a replacement for lost income for your family for a term that you select, allowing them to avoid financial burden as they manage their grief.
Insulate them from the negative impact of personal debt. It’s not uncommon for young parents to be paying off their college tuition. If you have private student loans, then they may not be discharged after you are deceased. Unlike federal loans, even if you pass own, your creditors may sue your estate for the balance of your loan (or your co-signer) if your loved ones are unable to make payments.
Other consumer debts—such as credit card debt and car loans—may also remain active. Your term life policy can pay off these debts or cover payments, allowing your family to remain financially secure.
Provide a financial cushion for your children, as well as pay for their education. You may decide that you want your partner to have the funds to cover your child’s college tuition in addition to maintaining a financial cushion to cover unexpected expenses, like medical bills.
If you use the laddering strategy mentioned above, then you’ll be able to have one policy that can handle your children’s educational costs and another policy to handle various expenses—such as if you want to contribute to them purchasing a first home—after they’ve become financially self-sufficient.
Term Life vs. Whole Life Insurance: Examining Your Options and Calculating Your Needs
Here are a few quick questions to ask as you’re looking at your term life vs. whole life insurance options:
Do I have a special needs child or someone I am caring for who may need protection throughout their lives?
Although a whole life insurance policy may seem an obvious choice, term life insurance may also be an option for you, depending on your family’s circumstances and the amount of care that your loved one may require.
If you’ve filled out our needs calculator and are still unsure, one of our insurance advisors can help you look at your options.
Do I anticipate my family’s needs changing over the years?
Your answer most likely is yes. If you plan to have more children, plan to pay for your children’s tuition, or wish to protect your spouse’s retirement fund, then you may need different amounts of coverage at different times.
In this case, you may want to ladder life policies to make certain that you have just the right amount of coverage when the need arises.
Do I have significant debt that I want paid off if I pass away?
If your aim is to leave your family debt-free upon your passing, then you should factor in all of your debt—such as your mortgage and other consumer debt—when assessing your coverage needs.
A simple way to get a good estimate of how much insurance you should purchase is to use our free term life insurance needs analysis tool. You simply enter a few details on the amount of debt you’d like to cover as well as how much you’d like to leave your family, and you’ll get an estimate of your coverage needs in seconds.
You won’t have to enter your email, number, or any personal details until you’re ready to apply. You can always call, email, or chat us if you have any questions.
Find the Best Term Life Insurance for Your Family in Minutes
Our free quotes tool doesn’t just let you compare quotes on a single page, it also allows you to see the most important consumer satisfaction and business ratings—such as those from the Better Business Bureau and Moody’s—finding the best life insurance companies. You won’t have to Google names to find out if your potential provider has a good reputation.
We know that as a new dad you’ll want to get back to spending quality time with your family. That’s why we’ve already done the hard work for you—finding the best life insurance companies, helping you find your insurance needs, and providing you with multiple quotes side-by-side.
When looking at term life vs. whole life insurance, only you can ultimately determine what’s right for your family. If you want to do more research, check out our term life vs. whole life insurance buyer’s guide for more information.
» Compare: Term life insurance quotes
About the writer
Writer, Editor, and Co-host of Quotacy's Q&A Fridays
Natasha is the content manager and editor for Quotacy. She has been in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. When not at work, she's probably studying and working toward her Chartered Life Underwriter (CLU) designation while throwing a tennis ball for her pitbull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.