Term Vs Whole Life Insurance
Theories about Term Vs Whole Life Insurance have been going on for a while. And, they will probably continue for a while longer. There are clear distinctions between Term Life Insurance and Whole Life Insurance and, therefore, one would think that making a decision between the two would be easy. Not so. The tendency is to go for Term Life Insurance because is cheaper and, after all, accomplishes the objective of providing a financial benefit in case that the unexpected happens. It is important, though, to understand well the differences and similarities between Term Life Insurance and Whole Life Insurance in order to be able to make a decision that is consistent with one’s personal and financial goals. In this page, we are going to try to provide you with the information that will allow you to decide which to choose.
What is Term Life Insurance?
Term Life Insurance is an affordable way to provide your family with death benefit protection. It provides you with coverage for a period of time that is finite; for instance 5 years on up to 30 years. If the policy is renewed, the premium is determined by the applicant’s age at the time of renewal. The renewal premium rate will be higher than the previous policy. Term life Insurance policies provide a stated benefit upon the death of the policy owner, as long as the death happens within the coverage period. The reason people buy Term Life Insurance is because they want to obtain the protection afforded by life insurance spending the least amount of money possible.
One Argument In Favor Of Term Life Insurance
One argument, for instance, that may justify the purchase of Term Life Insurance, as opposed to permanent life insurance (Whole Life or Universal Life) could be the following. A couple in their early 40’s and with young children, can take the position that they will need life insurance for only a certain number of years. Their goal could be by age 65:
a) have the home mortgage paid;
b) have accumulated sufficient funds in a retirement account to supplement Social Security, so that they can retire comfortably; and
c) have the kids out of the house and self-supporting.
If all of the above is accomplished by age 65, then it is possible that there will be no need for life insurance. Theoretically, they will have had life insurance coverage from age 40 to 65, with minimal financial obligations. So, when they retire, their need for life insurance will be minimal, if needed at all.
What is Whole Life Insurance?
Whole Life is the traditional form of permanent life insurance. It provides the certainty of level premiums, guaranteed interest rates and guaranteed death benefits. Whole life provide the extra security of guaranteed protection at an affordable rate, with the element of cash value accumulation. Guarantees are based on the claim-paying ability of the insurance company issuing the policy.
Compared to Term Life Insurance, Whole Life has higher premiums. But it also delivers more, the same way a car costs more than a bicyle; both vehicles can get you where you want to go, but a car offers a lot more utility for the money. When considering whether to get permanent or term life insurance, all options should also be considered.
The biggest value of Whole Life Insurance is the guarantees. The annual premium is guaranteed never to go up. The death benefit is guaranteed for life, and the policy’s cash value grows each year.
Participating (or “par”) Whole Life goes further. It pays annual dividends based upon the insurance company’s claims experience, expense controls, and investment yields. While the dividend are not guaranteed, they can grow every year and even surpass the premium in later years. Depending on how you use them, dividends also can substantially increase the policy’s cash value and death benefit. Whole Life delivers real long-term value for the money. However, one must give time to the policy for it to perform. Some people feel that Whole Life Insurance is a different asset class (other asset classes being stocks, bonds, etc.).
So, How Do You Stand Now On Term Vs Whole Life Insurance?
Clearly, each person needs to answer that question for themselves. Once you understand the differences and similarities between, Term Life Insurance, Whole Life Insurance, and Universal Life Insurance, you can make an informed decision.
Below we have put together a video with information about the three different types of life insurance policies, including Term, Whole Life and Universal Life Insurance.
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