I’ve had quite a few people ask me what the real difference is between Term And Whole Life Insurance and which they should buy. As much as I’m glad to help, the best that I can really do is explain the differences between the two and the pro’s and con’s of each type of policy. This will allow you, the consumer, to know what you’re getting before you buy.
Whole life insurance provides insurance throughout your lifetime, as long as you maintain the premium payments. The policy will cover you up until your death or age 100, whichever occurs first. Some of the pro’s of a Whole Life Insurance policy are you’ll build a savings that can later become an asset. It works like this. Part of the premiums paid go for your life insurance policy, while the remainder is placed into a savings account that will accumulate interest. You may borrow against this account if you need to, but it must be paid back. This gives you a bit of piece of mind in case of expenses at college, auto repairs or any other of lifes little emergencies.
Some of the cons of Whole Life Insurance is that it’s not cheap. The premium payments for whole life will be much higher than a Term Life policy would be. Another problem is that as you get older the savings account feature won’t accumulate nearly as
much. For someone just starting out, this makes more sense because they have their entire lives ahead of them, but for someone middle aged or above, I’d buy Term Life Instead
Term Life Insurance is just like it sound “Term”. This means that you are only covered for a specified period of time or a
Term. You could buy a Recurring Term, “20 Year Term”, Guaranteed Term, ect. Does this make sense now?
Term Life is also known as “pure life insurance” because that’s all you’re purchasing. Some differences between the two policies are, unlike Whole Life policies, there’s no savings account that accumulates or to borrow against. All that you’re paying is for insurance. Another con is that, as stated above, A few Term Policies such as Guaranteed Term, can be rolled over, but that’s another story. You need to visit my website below and I explain it there.
Most Term policies are temporary insurance. An example of how this can be used would be for the “breadwinner” of the household who is middle aged, the kids are grown, but still in college, he or she has been paying on their major assets, like their home, ect. for several years and they need some security to make certain that if anything happened, everything would be taken care so that the family could go on without any issues, other than the loss of their loved one. A 10 or 20 Year Term Policy might be a good option for the fictional example above, depending on their living arrangements.
My hopes are, you understand now why it’s difficult to give financial planning advice to people without knowing their specific circumstances. Just learning the differences between these two more popular types of insurance policies should put
ahead in the game of life insurance. Good luck!