Practical Differences Between Term and Whole Life Insurance
"Term"
and "whole" life insurance are phrases thrown about quite frequently
in the insurance world. You may well have some idea of the definitions of each
without really understanding their effect. So what is the actual impact on
daily life of each type of life insurance?
Whole Life Insurance
Put as simply as possible, whole life is an insurance contract that combines
life insurance with a savings plan. You may also hear whole life referred to as
permanent insurance. Whole life premiums are higher compared to those for term
insurance due to their cash value option (savings). You see, after 30 years of
paying on this type of policy, you can either cash it out as a lump sum, or you
can use the cash value to continue paying the premiums. Thus, you can keep the
insurance policy for your entire life.
Term Life Insurance
Term insurance, on the other hand, is life insurance which has a start and stop
date --hence the name "term life insurance." A typical term policy
has a term of 15 to 20 years. The premiums are much lower than those for whole
life for the same insurance coverage simply due to the fact that there is no
savings option; you are paying for insurance coverage alone. Some term policies
offer the option of renewing for another term once they expire, but of course
the premiums will be much higher at that point because of your age.
Whole vs. Term
The practical differences between term and whole life insurance come down to
need. If you need insurance for only a specific time frame, then term insurance
is your best bet. However, if you are looking for life insurance with level
premiums for 30 years or more that will accumulate cash value during that time,
then whole life insurance may be a better option. Your financial adviser can
help you decide which is the best choice in your unique situation.