Tuesday, March 27, 2007

Term Life Insurance Or Whole Life Insurance - Which Do I Choose And Why?

I've had several people ask me what the real difference is between Whole Life Insurance and Term Life Insurance, and which is the best option for them. As much as I'm willing to help, the best that I can really do is explain the difference between the two and the pro's and con's of each type of policy. This will allow you, the consumer, to make an educated decision before you purchase a policy.

Whole life insurance gives you insurance coverage for your whole life, as long as you maintain the premium payments. The policy will cover you up until your death or age 100, whichever occurs first. Some of the pro's of a Whole Life Insurance policy are that you will also build an account that has actual cash value. It works like this. A portion of the premium payments that you make are used to buy life insurance, while the remainder is placed into a savings account that will accumulate interest. You may borrow against this savings account later in life, if you need to, but you must repay the loan. This gives you a bit of piece of mind in case of an emergency like unexpected hospital bills, vehicle breakdowns, home repairs or any other of lifes little emergencies.

Some of the cons of Whole Life Insurance is that it's not cheap. The premium payments for whole life will be significantly higher than a Term Life policy would be. Another con is that as you get older the savings account feature becomes less attractive, for a first time buyer. For a younger person or couple, this makes more sense because they have their entire lives ahead of them, but for someone middle aged or above, I'd seriously look at Term instead.

Term Life Insurance is also just exactly what it says it is, "Term". This means that it covers you for a specific period of time or a Term. You could buy a "10 Year Term", a "20 Year Term", Guaranteed Term", ect. Does this make sense now?

Term Life is also known as "pure life insurance" because that's all you're buying. Some of the "cons" or differences between Term and Whole life are, unlike Whole Life policies, there's no savings account that accumulates or to borrow against. You are simply paying for insurance. Another con is that, as stated above, some Term policies are only for that specific Term or time frame, not your entire life. This means that your policy may not be renewable if you happen to become seriously ill. Some Term policies, such as Guaranteed Term, can be rolled over, but that's another story. You need to visit my website below and I explain it there.

Most Term policies are only for certain time frames. An example of how this can be used would be for the "breadwinner" of the household who is middle aged, the kids are grown, but still in college, he or she has been paying on their major assets, like their home, ect. for several years and they need some security to make certain that if anything happened, everything would be taken care of so that the family could go on without any issues, other than the loss of their loved one. A 10 or 20 Year Term Policy might be a good option for the fictional example above, depending on their specific circumstances.

Hopefully, you understand now why it's difficult to give specific advice to people without knowing their specific circumstances. Just learning the differences between these two more popular types of insurance policies should put ahead in the game of life insurance. Good luck!

1 comment:

W2E said...

Cool post – here’s an excerpt from an article I wrote a while ago that kind of completes the info you provided:

When it comes to the most popular types of life insurances, these are represented by the whole life insurance and by the universal life insurance. As opposed to the previous type of insurance, these ones have are not limited to a certain period of time. The first one is the one that resembles the term insurance, with the specification that, in this case, the period of time refers to all your life. Some might say that this type of insurance comes with the highest rates (even though this fact depends from company to company).

The latter form of insurance, the universal life insurance is basically the most complex package you can get. In addition, this can be the most personalized package you can get. Basically, the universal life insurance is in your hands, meaning that you are the one who decides the sum above the premium. Your investment will be part of a cash-value account, which can have various usages. Another popular variant of this type of insurance is represented by the universal policy insurance which allows you to opt for investment vehicles.

The final type of insurance is represented by the variable life insurance. What does this mean? This is the type of insurance that provides for you a larger range of investment products, which can also include stocks. Basically, in this case, the beneficiary of the insurance can receive either the value of the insurance policy or the value of the cash account.

When dealing with these different types of life insurances, there is one thing that you need to remember, and that is that their names and titles might differ from company to company or they might depend on your location. Not all of us are specialists in insurances. Besides, they can even make us confused. But as long as you are informed regarding the available life insurance possibilities, you have nothing to worry about. Act ahead and choose the perfect insurance type for you!

Hope it was a good read. For more info on life insurance policiesplease visit our blog.

Mike. S.