Term Life Insurance: The differences between Term and Whole Lifepolicies

Author: Dan Johnson
Source: articleage.com

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.

Advantages Of Whole Life Insurance Policies

Author: Donald Lusan
Source: articleage.com

When you consider the advantages of whole life insurance
policies I hope you will conclude that this is life insurance
worth owning. I have no objection to term life insurance and
even owned some when I was much younger. Each type of policy has
it’s place and it’s own function. I cannot, for the life of me,
understand why some people never have appreciated this. I refer
to the term advocates who seem to hate the thought of buying a
whole life policy.

The First Of The Advantages Of Whole Life Insurance Is The
Death Benefit

The whole life insurance policy assures you a guaranteed death
benefit that never decreases and upon death is usually free of
federal income taxes. If you choose you may take the death
benefit in the form of a monthly income instead of a lump sum.

The Premiums Remain Level; Another Of The Advantages Of Whole
Life Insurance Policies

When you buy a whole life policy the premium you start out with
is the premium you will always pay. It never increases. If you,
however, decide to use your dividends to reduce premiums you
will pay a much lower premium than you contracted for.

Whole Life Insurance Policies Have Cash Values

Another of the advantages of whole life insurance are the cash
values. They can be borrowed by the policy owner for whatever
reason he or she should choose. If you should decide to
surrender your policy at any time you receive your cash values.
These cash values accumulate tax deferred.

Participating Whole life Insurance Policies Earn Dividends

If you own a participating whole life insurance policy you
automatically become eligible to earn dividends on your cash
values if the company performs well, which they usually do.

These dividends can be paid to you in cash, can be used
to purchase paid up additions, to reduce premiums
or they can be left to accumulate at interest.

Certainly these are worthwhile advantages of whole life
insurance. There are many, many more…