Term versus Whole Life Insurance - What's the Difference?

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.

What is your zip code? Do you use tobacco? Yes No What is your date of birth? Month January February March April May June July August September October November December Date 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Year 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

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 amount 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, and 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.

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 uninsurable. 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.

TriCo Bancshares Announces Quarterly Earnings - MarketWatch (press release)
29 Jul 2010 at 7:11pm

Earthtimes (press release)
TriCo Bancshares Announces Quarterly Earnings
MarketWatch (press release)
The improvement in increase in cash value of life insurance is due to increased earnings rates from such insurance policies. Noninterest expense for ...
Bad Credit Auto Loans with Credit Life and Disability Insurance - Auto Credit...
20 Jul 2010 at 12:06pm

Bad Credit Auto Loans with Credit Life and Disability Insurance
Auto Credit Express (blog)
Unlike a whole life policy, term insurance is also a form of life insurance that builds no cash value. In addition to being a form of term insurance, ...

and m...
Abortion groups caught off guard - Politico (blog)
30 Jul 2010 at 3:44am

Abortion groups caught off guard
Politico (blog)
After one term, they do get $160000.00 per year, for life, Gee think that could be it. NO; To these guys that's nothing (starvation)let's see now, ...

and more »
BREAKFAST BUZZ for July 16, 2010 compiled by Steve Kraske and Dave Helling - ...
16 Jul 2010 at 6:13am

BREAKFAST BUZZ for July 16, 2010 compiled by Steve Kraske and Dave Helling
Kansas City Star
... health insurance, life insurance, pension, etc.) for Missouri state workers vs. comparable private sector employment on the Tax Foundation website. ...