Term vs Whole Life Insurance

Term Vs Whole Life Insurance

Consumers are often confused about the difference between term life insurance and whole life insurance, and they may be confronted by a lot of confusing information. Of course, most information on comparing insurance policies is put out by insurance companies or insurance agents, and so one might suspect that they have an agenda. Nobody can really blame them, but many of them want to sell the products that will make them most money. However, you can find enlightened agents who are interested in speaking with clients, and then coming up with the best life insurance policy for each client.

Term Life Insurance, as the name inplies, is purchased for a certain length of time (or term). It is usually purchased for a period of years from 10 years to 30 years, though terms exist. Since an insurance company is going to take an application and underwrite any policy, they will only offer coverage if they believe the applicant has a good chance of surviving the term  of he policy. This is one of the reasons why term life insurance is cheaper than whole life insurance.

On the other hand, whole life insurance will cover an insured person for their whole life. Usually the policy is designed to mature at age 100, at which time the company will pay out the full face amount, even if the insured person is still alive. But because most people do pass away before age 100, the insurance company is assuming a risk that they must eventually pay out on if the insured person keeps the policy in force. This is why whole life insurance is more expensive.

Whole life insurance also will grow a cash value, and so these policies can be used as a savings or investment vehicle as well as insurance. Generally, life insurancc policies are not the best investments, but of course, they also come with life insurance! So one advantage to having a whole life policy is that it can provide security of a death benefit while still being an asset that can be borrowed against or partially cashed in.

Note that cashing in a whole life policy for the cash value may not be the best way to profit from your insurance! Older people may be able to benefit from a type of deal called a life settlement. Investors are willing to buy permanent coverage from older people for a sum that is a much larger percentage of the actual death benefit (face value) than you will probably get by surrendering the policy back to the original insurer. Learn more: Life Settlements for Seniors

Who Buys Term Life Insurance vs Whole Life Insurance?

Many younger families would be fine with term life insurance. They will need the larger death benefit and lower premium rates while children are young and mortgages are owed. It may also suit them to add the purchase a smaller face value permanent policy while they are young. Premiums will be lower at a younger age, and the insured people can probably even pay the policy up over a period of years. This way, when they do age, they will have the security of retirement life insurance.

 However an older person may be well served by a smaller face value on a whole life insurance policy to make sure their heirs have a convenient way to pay burial or final expenses.  As people enter their senior years, it may be tough to find term policies. Though younger seniors in good health can still find term life for older people.

The Best Life Insurance For You?

In the end your own unique situation, budget, and future plans will impact your choice. You need to understand your choices, how they will protect you, and try to estimate your future needs.

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