Term vs Whole Life Insurance
You need life insurance, but what kind and how much is often tricky to figure out. You’ve heard the experts say having the wrong type of life insurance can be worse than no life insurance at all. However, like most people, the thought of learning about life insurance is about as exciting as a trip to the dentist. You need a simple explanation. Well, let’s look at the options of term vs whole life insurance which are the two main types available.
Term vs Whole Life Insurance – 2 Very Different Animals
What is the difference when considering term vs whole life insurance? Term life insurance is what we normally think of when we think of life insurance. When you die, money is paid to your beneficiary, the person you have designated to receive it. Term life insurance can be bought for a certain length of time, known as the term. If you die after the term runs out, there is no payment as the coverage expires without renewal. Whole life insurance, on the other hand, is life insurance with a kick. As the name indicates, the policy is intended to be carried for a lifetime. Whole life insurance is also called permanent life insurance. In addition to the death benefit, there are also some investments, savings and interest attached to it and it accumulates a cash value that can be borrowed against, or returned to you outright if you decide to cancel a policy. Some people use this as part of their estate planning considerations.
Term vs Whole Life Insurance – Price as a Major Factor
When considering term vs whole life insurance a major concern will be the price. Whole life is more expensive because your premiums are also paying for the investments. Some sources indicate that regardless of what the agent may tell you, there is no way to know which of the investments will provide a good return, which will take about 15 years anyway, so in some ways you are taking your chances. However, with most whole life policies, you reach a point where you no longer have to pay premiums as they are covered by the investment portion of the product.
In view of the cost, the term versus whole life insurance question may be answered for you if you decide the premium for a permanent policy is outside the confines of your budget. Keep in mind, however that premium that seems so high to day will never increase, regardless of the economy or the condition of your health if you purchase a traditional whole life plan. Term life insurance rates are initially lower, but can go up due to increased costs for the company or a decrease in the quality of your health. Term life rates also go up as you get older so that’s another factor to keep in mind.
Another factor in the term vs. whole life insurance question is that of eligibility. Once the original term expires, if the insured has developed any illness, they may be deemed non-insurable. If that is the case, the policyholder is left with no insurance. Once a whole life policy is purchased, the policyholder is covered regardless of changing health conditions.
Hopefully, you now have a clearer picture of the differences concerning term vs whole life insurance and will be able to make an informed decision regarding your life insurance needs, whether it be a simple term policy providing only a death benefit or a whole life policy providing something extra.