What's the Difference Between Whole and Term Life Insurance?

It's important to know the difference between whole verse life insurance before you start to shop.

Whole life (also called permanent) policies are insurance policies that accrue cash value over time and usually pay dividends. Buying a whole life policy is an investment. As the named insured, you have the ability to draw against the cash value. Whole policies are more flexible and more expensive than term policies.

Term life polices are less expensive and inflexible. Term policies are bought for a designated period of time. If the named insured dies before the policy expires, the benefits are paid. However, if the policy expires before the death of the insured, there are no return premiums. As the insured you have the option to renew the policy for another specified period of time, or let it expire.

The difference between whole life and term policies is similar to the difference in buying verses renting a house. A whole policy would be like buying a house. The purchase of a house is an investment. Usually the house appreciates in value. You can borrow against the growing equity in the house. When you decide to move, you sell the house and reap the financial rewards of the investment.

Renting, on the other hand, is like a term policy. You rent an apartment or house for a specific period of time (lease). You do not have the option to borrow against the equity. When the lease is up, you either renew the lease, or move. If you choose to move, you do not get a portion of the rent back.

Term policies do, however, allow you to upgrade to a permanent policy without the need for a physical exam (similar to renting a house with the option to buy). A change in your financial condition may allow you to afford a whole policy that was out of your financial reach a few years earlier.

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Term Life Insurance: The Differences Between Term and Whole Life Policies

Life Insurance quite generally is a policy whereby you pay a company a premium so that if you die while covered your descendents receive financial benefits. Within the larger Life Insurance window there exist two broad categories of policies, Term and Whole life (Whole Life is also known by the equivalent term Universal Life Insurance). Term Life is exactly what its name implies, valid only for a certain period of time, whereas Whole life lasts the duration of one's life.
Price Differences
Because Term Life has a structured beginning and end, typically from 1 to 30 years, it is normally quite a bit cheaper than Whole Life. That is because under Whole Life it is assured that the insurer will eventually pay out (as we all eventually die). Under Term Life, however, there is a very good chance that you will live through the period of the policy and thus the insurance company can simply take your premiums without ever having to pay out anything.
Benefits Differences
Another important distinction between Term and Whole Life is the fact that at the end of the Term Policy, the policyholder is left with nothing but his own health. On the other hand, with a Whole Life Policy the insurer often takes a portion of the premium and places it into a savings account for the policyholder. In case of emergency later in life, the Whole Life Policy Holder can access that money to meet some needs while still living. As you can imagine, the Insurance Company raises the price they charge for access to all of this.
Deciding Between the Two
So, how does one decide between Term and Whole Life Insurance? To best answer that question it is important to ask why you need the insurance in the first place. Is it because you have young children and a spouse who does not have the earning potential to get your children through college? Or is it because you work in a dangerous industry and will regularly face the prospect of death over the next few years? These are both excellent candidates for Term Life Insurance. In the first case, it is important that the provider ensure enough financial support for approximately 10 years and then the need drops off, while the second example may require a shorter 3 - 5 year Term Life Policy.
On the other hand, let's imagine that you have a mentally handicapped person you will support indefinitely, or a spouse that has never worked at all. These may be better candidates for Whole Life as the financial need they feel responsible for extends not only to some definite period in the future, but as long as the other person is alive. Under these circumstances, paying the premium for Whole Life might be worthwhile.
Term and Whole Life Insurance fill an important void in many lives by providing some assurance that in case of an accident, loved ones will not be left stranded. It is important to remember, however, that the policies are not panaceas. The savings rate on Whole Life Policies is usually dismal compared to open market rates, and with Term, you are making payments on a product you may never use. Ultimately, the decision to purchase either of these products should involve weighing your personal risk and health, your current and expected financial situation, and alternative uses for funds you have earmarked for a policy.

3 Areas to Consider When Choosing Between Whole and Term Life Insurance Policies

Are you confused about which type of life insurance is best for your family's needs? When weighing your options for these plans, there are benefits as well as disadvantages to each of the four types of insurance (whole life, term, universal life and variable universal life). When selecting a policy, be sure to consider your budget, your insurance proceeds goal and your overall financial picture.
There are options to consider when looking at a whole life insurance quote that might be of some benefit depending on your situation. Likewise, inexpensive term life insurance has several types that could be of more benefit to you specifically. The following are some considerations when looking at both of these alternatives:
Do you want a bargain? As soon as you look at the quotes you will be able to see that whole life is more expensive than term life policies when placing similar policies side by side. But your definition of "bargain" could depend on your specific policy needs. If you wish to include an investment option in your insurance plan as well as provide some tax benefits, whole life could be considered a better bargain for you. If you really want to get the most insurance dollars for your money, then term life would probably be a more likely choice for you.
How about the perks? Some people consider whole life as the best choice because of the additional investment options that are made available through whole life plans. Because whole life builds value over time, you can borrow against it. You can also set up many different investment options with the various funds that the policy provider makes available. You can pay your whole life insurance at a set rate for the entire period of the policy, or you can work on variable rates depending on your investment options or time periods. Term Life does not offer investment choices, but there are additional features to consider such as accidental death or long term care that can be combined into your policy.
Should your children be a factor? As soon as you have children it is wise to update or begin your life policy with their livelihood in mind. Whole life and term life both have good options to make sure your children are taken care of in the event of your death. As children get older, it is important to look at choices for them. Some people like to start a whole life policy for their children. This provides an investment option as well as an insurance policy lumped into one plan that can be considered a valuable gift for your child. Others prefer to stick to a basic term life policy for their children when they get to high school or college.
Consider your unique situation carefully when looking at inexpensive term life insurance and whole life insurance online quotes. Both options can provide the benefits that you need.



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