Life Insurance: Whole Life vs. Term
Life Insurance is a very important financial tool these days which can help you in a broad range of financial objectives. Life Insurance not only gives you financial security in case of adversity, but it also is a great source of income for yourself and your family.
In the earlier days, whole life insurance was the only form of insurance on the market. With tax reforms in the 1980’s, insurance companies and banks started earning from the interest. At the same time, people learned that by putting all their money into whole life insurance, they could earn a lot of money by investing it in the market and buying a term life insurance policy. Since then, term life insurance has become increasingly popular among people.
For most people, it can be confusing trying to choose an insurance policy. To better educate yourself about the benefits and risks of the both types, this article will compare whole life and term life insurance.
Whole Life Insurance
Whole life insurance is also referred to as permanent life insurance. Most whole life insurances are an extension of term life insurance, but with an accumulated saving element. Meaning, the investment portion increases the longer you’re alive. The beneficiaries of the insured person are paid the face value of the insurance at the time of the benefactor’s death.
Whole life insurance is ideal for those with health issues or those who are worried that they might catch an illness that may lead to uninsurability as the time passes. A whole life insurance policy cannot be cancelled as long as the premiums are paid.
Pros
- Lifetime Policy – Having whole life insurance means that you are covered for your whole life. The premiums that you pay are guaranteed to be the same for a lifetime.
- Whole Life Savings/Investment Feature – If you are not good at saving or investing money, then a whole life insurance is usually the most ideal solution for you.
- Whole Life Insurance Is Guaranteed – Most whole life insurances policies are guaranteed when sold. You are typically guaranteed a minimum rate of interest on the cash value accumulation.
- Can Borrow Against the Cash Value of the Whole Life Insurance – Another convenient feature of whole life insurance is that you can borrow a certain percentage of the money and after some established years you can use the money as you like.
Term Life Insurance
A term life insurance policy is an easy and affordable form of insurance. You can buy it for a specific term of 5, 10, 20, or 30 years. Term life insurance provides a specific death benefit and protects an individual for a specific period. If a person is still alive at the end of the contract, all the premium is lost.
Term life insurance is best suited for those who want to get a maximum coverage at the lowest possible price for a certain time period. Term life insurance is also ideal for certain financial obligations that will be ending on a future date.
Pros
- Term life insurance policies are the lowest in the insurance market; therefore, they allow younger customers to buy more coverage when they need it.
- Term insurances are best for protection that is only needed for less than ten years.
- It helps young people have life insurance at a very low cost and still get the necessary protection required even if they become uninsurable.
- Individual packages can be easily created by combining different types of term life with other types of insurances.
Both of these life insurances offer valuable protection and each has different features. As you grow older and your needs evolve, you should be sure to evaluate and ensure you have the insurance that best matches the needs for you and your family.
