The Differences Between Term Life Insurance and Whole Life Insurance
Posted by admin | Posted in Life Insurance | Posted on 16-05-2009
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If you are just thinking about buying a life insurance policy or you have already decided to buy a life insurance policy, it is necessary for you to get an idea about the distinctions between a whole life insurance policy and a term life insurance policy. Getting some knowledge about these distinctions would help you select the most suitable life insurance policy.
The most identifiable distinction between whole life insurance policies and term life insurance policies is the truth that a term life insurance policy would give you coverage for a particular number of years; on the other hand, a whole life insurance policy would offer you coverage for your whole life. When you are searching for life insurance coverage for a particular time period, a term life insurance is perhaps a favorable alternative for you. Nevertheless, if you want to insure yourself for the remaining part of your life, you must buy a whole life insurance policy.
Another distinction between whole life insurance policies and term life insurance policies is that a cumulated cash price is offered by a whole life insurance policy that is tax-deferred in nature. This functions as an element of investment. A few individuals are keen to check the capacity of investment by utilizing their life insurance policies. Thus, they opt to buy a whole life insurance policy. Though, when you utilize other means of investment, a better choice for you is a term life insurance policy.
A third distinction between whole life insurance policies and term life insurance policies is the variation in price. Whole life insurance policies are usually costlier than term life insurance policies. But whole life insurance policies frequently provide fixed yearly premium, so there is no reason to be anxious regarding the rates going up in case your health condition starts to get worse. The majority of term life
insurance companies would increase your premiums on the basis of the present status of your health and your age.
Therefore, at the time of starting your search for an ideal life insurance policy, you should take into account these differences and make a decision about the type of policy that is suitable for you.
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Help answer the question about life insurance
How do I help families not see life insurance as a bill but rather protection for their family?I am on a crusade to help families become properly protected (create an immediate estate) in case of a loved ones untimely death. Of lately, prospects see life insurance as another bill. Although it is; can any life insurance agent please share with me how they get around to making sales in the life insurance industry? Thank you.
Term covers a number of years like 20-30 so is used for things like covering raising children if a parent dies. A parent who is 20-30 isn't likely to be dead in 20-30 years so it is truly insurance against premature death. You can buy a large amount like a million dollars for a cheap price. When the term is done the children are raised and you should have life savings and your spouse is able to work to support themselves.
Whole life covers you the rest of your life so will pay off even if it is 80 years later. So it cost much more for the same amount of coverage so most people buy less of it. You might consider a policy of enough to pay for a funeral if you think you will stay poor your whole life. It builds value over time but not much compared to the increased premium.
Besides paying for a funeral you might want it for estate planning. If you have a company or farm you want to leave to heirs and estate taxes would make family sell you might want it but your estate attorney will tell you not an insurance agent.
There are a number of differences between the two types of policies. The simplest way of looking at it is that term is like renting and whole life, or permanent, insurance is like owning.
Term insurance provides you with typically the lowest priced insurance product because the only accept the risk that you will die before reaching a specified date. If you do die during that time then the insurance company pays the established death benefit. If you out live the policy, you will typically not receive anything back.
With whole life insurance, you are paying the insurance company to provide your family with the insurance pay out when you die. Whole life insurance will usually last until at least age 100, regardless of when you begin the policy. There are some variations of whole life which also allow you to finish paying on the policy at a specified age, or after a set time period, but in these cases, the policy lives on even though you are no longer paying for it.
That's like saying, what's better, apples or oranges?
BEFORE you buy life insurance, sit down, and write out what you want it to DO for you. You should have a GOAL, and an EXIT STRATEGY, just like any OTHER financial tool you use.
Then sit down with your local agent and see which tool fits your needs.
For MOST people, they want life insurance around when they have minor or college age children – as they get older and more financially secure, and the kids leave the nest, and the mortgage is paid off, and they start acquiring some real serious assets, they don't need the life insurance – so TERM life fits that need best, and is the most affordable type coverage.
But some people, especially those that own a family business (think, family farm!) need a policy to pay ESTATE TAXES so the family doesn't have to literally, sell the farm, in order to pay the estate taxes. It doesn't MATTER that you don't have kids any more. Or maybe, you're dying of cancer, and want to leave your grandkids $1,000,000 each, without Uncle Sam taking 40% in estate taxes FIRST. If you buy a WHOLE LIFE policy, even if it costs more than the $1,000,000, it WON'T cost as much as paying estate taxes will, and then you get to leave tax free benefits to someone.
So, just like everything else, you need to pick the right tool for the job. But you need to define the job, first.
Whole life builds cash value, which you can borrow at anytime. If you die while the policy is still enforced, you will lose the cash value. If you missed any premiums, your cash value will be automatically used to pay it. Loan interest on the cash value will accumulate and you will have to pay this back. If the cash value is depleted, you will lose coverage. Because of the cash value feature, it is said that whole life policies are expensive.
With term insurance, it does not build cash value. Therefore, term insurance are inexpensive. Since it is inexpensive, you can save your money in savings accounts, CDs, money markets, mutual funds, 401k, or your own IRA. Most term policies are renewable, which means no proof of insurability is required.
<>Term life insurance is in effect so long as you pay for it and pays out the face value of the policy at time of death. Whole life is an investment policy. Your premiums earn interest which can be paid back to you, added to the value of the policy or be used to pay the premiums, eventually making the policy self-perpetuating. The face value and any accrued interest is paid out at death, or the policy can be used as a retirement portfolio.
The difference between term and whole life is as follows:
Term Life gives you just plain insurance – no interest or dividends etc.
you can buy 5 year term – 10 year – 20 year etc. but at each renewal your premium will increase. Most Seniors find it too expensive when they reach 65+ because after paying premiums all their life – they have no insurance when they need it the most.
Whole life is insurance for all your life until you reach 100 years old.
The premium stays the same – a little more expensive in the beginning but often the cash values can be used to pay the premiums in the latter years, once they have accumulated at a decent rate.
The decision to buy one or the other is entirely up to you – although some agents push for one or the other.
When I was an agent I would present both types of plans and then sit back and let the client make his/her own decision.
For myself I have a Universal Life with a GIA – Guaranteed Investment Account that gives me a good % of interest on my money.
I pay a certain premium – lets say $30. a month and part of this $30. payment goes towards the cost of insurance and the rest of it goes into a money market account that earns compound interest.
If you have a really competent agent he/she will explain everything in plain language for you to understand.
One way or another insurance is a good deal. It helps prevent long term poverty. It is an unselfish act to provide for the ones you love while making a bit of a financial sacrifice.
Also business insurance is also a good investment from the point of view of unselfishness – you provide for your company and its employees and its partners even after you are gone and cannot contribute yourself – your insurance $$$ help your business continue on.
lifeinsurance.awardspace.info – try this one. I have their insurance and, as remember, they can provide such a service.
Term insurance is where you see the need that you only need temporary life insurance and don't expect anyone to be dependent on your income if you outlive the term. There are inexpensive and most term policies are renewable when the level term expires. The policy itself doesn't expire, it just renews itself when it expires. When it renews, your premiums will go up since you are older. Most people get a 30 year term because they have a 30 year mortgage.
Since term is so inexpensive, people usually invest the difference into their retirement accounts. Whether its a 401k, 403b, IRA, etc.
Whole life is a permanent insurance that contains cash value in it. You are covered for life or until you reach age 100. Whole life is the most expensive life insurance product out there. While cash value grows tax-deferred, it is important to know that if you ever wanted to use it, you have to borrow it with a loan interest of 5-8%. If you die, you will lose all cash value. Only way you can take the cash value is that you surrender the policy. Surrender charges may apply.
Here's a hypothetical illustration of the costs for a 30 year old male seeking $100,000 coverage.
With a 30 year term, it would cost around $300/year.
With whole life, it would cost around $2000/year.
That's a $1700 difference!
As you can see, the bigger the annual premiums, the bigger the commissions a life insurance agent will make. You can see why whole life insurance is more commonly sold than term. Agents will say anything to make people buy whole life or some other cash value life insurance policy. They'll say things like term insurance rarely pays death claims. Well, do you know when you going to die? Of course not. So how would insurance agents know that term rarely pays death claims? I'll tell you how. They never sold a term policy in their life and yet they own it themselves!
Life agents will also say that term gets more expensive when you renew it. While that is true, most people who buy term buy a long term policy such as 20 year or 30 year term. When the term expires, their needs change and so they might not need as much coverage or probably don't need life insurance any more. You have to be careful when purchasing term insurance. Most agents will sell you a short term insurance of 5 year or 10 year term and then come back to you to convert it into whole life.
LOL I'm laughing at the justifiable claim Bob says, that means, YOU DIE.
Anyway. Whole life, the premium is set when you take the policy out. You pay that premium every year, for your WHOLE LIFE, and it doesn't change. As eventually you WILL DIE, and the odds are always in favor of the insurance company, you will end up paying a WAY LOT for whole life insurance, IF you keep it until you die.
Term life, the premium is set when you take it out, but only for a certain number of years. It's WAY cheaper than whole life, consider it "pure" insurance. When the term expires, you can renew it, but at a higher premium.
Term is cheaper, but expires (and can be renewed). Whole life never expires, but costs about 10X as much.
Which you pick, is going to depend on what your GOALS are.
Most of the big name financial advisors recommend that you buy the insurance that your need. If you need coverage for a period of time buy that, if you want a death benefit until you actually die, then go longer.
Instead of whole life though go with (consider I shoudl say) a universal life that gives you a guaranteed premium until you're 100 years old.
A combination of policies can work for some, but if you make less than $100,000 per year then (shooting from the hip) a term policy OR even better a return of premium term policy will suit most of those folks.
Use the tool on my site to quote the different available plans. It requires no personal information yet it quotes the carrier direct rates (which is lingo for the rate you'd pay) from ~150 different carriers.
Look at term, return of premium term and to age 100 coverage….
http://insurancepickle.com/life-insurance
For the record I'm not a fan of whole life at all, but that doesn't mean the product doesn't fit the situation. AND, I'm not a fan of these hokie companies trying to sell a whole life insurance policy and become 'their own banker.' There are plenty of scams surrounding the sale of the product, but that in and of itself doesn't make it a bad product. I own a version of both types of products.
AND you don't want to take advice about life insurance from someone who clearly spent their career selling car and homeowners insurance.