Term life insurance in estate planning: pros and cons
Estate planning can be one of the most caring things you do for your family. It helps make sure your money, home, and belongings go where you want after you're gone. For older adults, it can help reduce stress for your loved ones because estate planning might help prevent legal delays. One tool that may help is term life insurance. But is it the right choice for your plan? Let's take a look.
What is estate planning?
Estate planning is the process of getting your affairs in order, so your wishes are clear when you pass away. It often includes writing a will, and naming someone to handle your finances and health care if you cannot. It allows you to make plans to pass on your home, savings, and personal items. It also helps you prepare for taxes and final expenses. For adults over 50, this might be particularly important. It can help you protect your loved ones and leave a lasting legacy.
What is term life insurance?
One of the tools people use in estate planning is term life insurance. You buy coverage for a term, which lasts until a specific time. Your beneficiaries can receive money if you pass away during that time. They can use the money to help with funeral costs, bills, or other needs. Your coverage ends if you live past the term.
If you’re wondering what the difference between whole and term life insurance is, you’re not alone. Some of the most common searches are “term vs whole life insurance” and “whole vs term life insurance." Maybe you even searched one of those—which landed you here! Many people are curious about how these two types of life insurance differ. Here’s the main idea:
- Term life: usually provides temporary coverage, may offer a lower initial cost, and typically does not include a cash value feature.
- Whole life: provides permanent coverage, potentially higher but generally stable premiums, and can build cash value over time that you can borrow against (though unpaid loans can reduce benefits).
Why older adults may use term life insurance in estate planning
1. It can have lower initial rates, compared to whole life
Term life insurance rates are usually lower than whole life (also known as permanent life), especially at younger ages. Even term life insurance for older adults can be more budget-friendly than permanent life options.
2. It's relatively easy to understand
There are no investment features or cash value to consider. You pay an initial premium that increases at set age bands.
3. Can be good for short-term needs
If you only need coverage for 10 or 15 years to do things like help cover debts, care for a spouse, or leave something behind, then term life might work well.
The other side of term life insurance in estate planning
1. Coverage can end too soon
If your life insurance runs out before you pass, your family won’t receive anything. Buying new coverage later may be hard or costly.
2. No cash value
Unlike whole life, term life doesn’t build savings you can use while you're alive.
3. Cost rises with age
Term life insurance in many cases goes up as you get older. Typically, the longer you wait, the more you’ll pay. And sometimes you may not qualify due to health.
Is term life insurance right for your estate plan?
It depends on your goals. If you want simple, short-term coverage at a rate that is usually lower initially, term life may help. If you want to leave money no matter when you pass, or build value you can access while alive, whole life might be a better match.
Either way, understanding the difference between whole and term life insurance can help you make the right choice for you and your loved ones. Consider finding a trusted advisor to consult, so you can ensure your estate plan reflects your wishes and your family's needs.
This article is provided by New York Life Insurance Company for informational purposes only. This article is not intended to provide tax, legal, financial or accounting advice. Please consult your own professional for advice specific to your circumstances.
