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Whole vs. Term Life Insurance

When purchasing a life insurance policy, there are many decisions that must be made. One of the first choices a customer will face is whether to purchase a whole life policy or term life insurance. Depending on your needs, financial situation, age, budget constraints and other factors, the type of life insurance policy you need may vary. By understanding the difference between your policy options, you can make a smart choice for your financial future.

All life insurance policies provide financial security to your loved ones after your death. you pay a monthly premium to the company, and in exchange the company agrees to pay a certain amount of death benefits to your chosen beneficiaries. Depending on the type of policy you choose, however, the details of this pay-out will vary. Additionally, some types of policies have added-value features in addition to this basic arrangement.

A term life insurance policy is the simplest way to insure your future. You purchase the policy for a specific amount of time, called a term, and pay monthly premiums for the duration of that term. If you die at any point during the term, the full amount of your death benefits will be paid. Otherwise, your policy expires at the term’s end, and you lose any money you paid in premiums. Term life policies have no cash value and do not become more valuable over time; the death benefit stays the same whether the policy is used after a day or 10 years.

whole life insurance works differently. These policies are not constrained to a particular term, and they grow in value with each passing year. As long as you pay your monthly premiums, you will maintain a whole life policy. A portion of the money you pay each month will be put toward various investments such as stocks, bonds or mutual funds. These investments in turn grow the total value of your policy. A whole life insurance policy has a cash value, and the insured can borrow against it or withdraw money from the policy prior to death.

Because whole life insurance has an investment component, it is an attractive option for young people or those looking to grow their wealth. It is, however, much more expensive than term life insurance, and the added expense may not be worthwhile for all customers. For the same monthly price, you may be able to afford a much larger term life insurance policy. Additionally, term life insurance may be easier to get even if you are not an ideal candidate for coverage; whole life policies can be more exclusive.

You can help yourself make the best possible decision about your financial future by researching the life insurance options available to you. By getting quotes from several different insurers, you can determine which company will best serve your needs while offering a price you can afford.

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