The Difference between Term and Whole Life Insurance

Purchasing life insurance can be a difficult and confusing task.  With many different insurance options, becoming an informed consumer can help you choose the right option for your family.  The two main types of life insurance are term life insurance and whole life insurance.  A term life insurance policy covers the insured only for a specific amount of time while a whole life insurance policy is designed to cover the insured their whole life and provides the beneficiaries with a cash value that grows with interest.

Term Life Insurance

Term life insurance is designed to provide consumers with a specific amount of coverage for a set period of time.  This is a temporary option meant to protect beneficiaries in the event of an untimely death.  At the end of the policy, all premiums belong to the insurance company.  Because of this, term life insurance is easy to receive and affordable.  Deciding how much term life insurance to get depends on your needs during the set time period and this solution is ideal for young families who may have college expenses, funeral costs and mortgage payments to make if one person suffers an untimely death.

Whole Life Insurance

In contrast, a whole life insurance is more of an investment plan.  A whole life insurance policy accumulates over time and builds a cash value.  This cash value can be used for college expenses, mortgage payments or other necessary expenses.  While term life payments are paid over time, an added benefit of a whole life insurance policy is that the beneficiaries will be paid in full upon the insured’s death.  Whole life insurance policy payments are more expensive than term life insurance policy, but the payment premium is constant; term life policies payments increase with age.

Picking the Best Option

Term life insurance is generally the better option for young families starting out who have large financial considerations and limited financial means.  Because term life insurance offers lower payments and the ability to provide the insurance only during the time period that is needed, it is perfect for temporary coverage.  The benefit of whole life insurance though, is that once the policy is in place, the premiums do not change with age.  It provides a tax-deferred, cash value as well as a forced savings plan.  However, the interest rate on returns may be much lower than if the money had been invested within the stock market or other investment opportunity.

When deciding whether term life insurance or whole life insurance is the best choice, examine your family’s future needs.   Speak with some of the top insurance companies like AIG, Berkshire Hathaway, UnitedHealth Group or MetLife to determine what all the options are and how to protect any beneficiaries.  Comparison shop and determine how long you will need a policy in place and any health conditions that may adversely affect coverage.  Policy rates are based on age, health and death benefits.  Protect your loved ones by finding the right insurance to protect their long-term financial needs in the event of an untimely death.

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