Recommendation needed: A 20 pay whole life or a term life insurance policy
Dear Cheryl&Mack,
My nieces just got a 20-pay life policy and I was thinking it might be a good option for my adult children as well.
Could you explain what a '20-pay' whole life insurance policy is?
Would a term policy be better suited?
Thanks!
Signed,
20Pay
Dear Financial Contemplator,
A "20-pay" whole life insurance policy is a paid-up policy in 20 years, that holds cash values that you could borrow in the future.
During the 20-year premium-paying period, policyholders contribute regular payments (the premium).
At the same time, a portion of these premiums goes into a cash value component, accruing over time, and the investment will continue to grow (compound interest, yay!).
This cash value grows tax-deferred, serving as a financial asset that can be borrowed or used (depending on the policy) during your lifetime for various purposes like:
supplementing retirement income
education
emergencies,
other financial goals.
This option is beneficial for individuals who have the capital to pay a higher premium for their policy for the next 20 years.
These premiums tend to be a bit more expensive than term policies.
In comparison to term policies, the main difference is there is no cash value attached.
Term life insurance tends to have more affordable premiums initially, making it a popular choice for individuals seeking temporary coverage at a lower cost. You can learn more here.
As always, reach out if you have any questions.