TERM VS WHOLE LIFE INSURANCE

There are two major types of life insurance and they are term and whole life insurance. So what is the right choice between term vs whole life insurance? If you are going to be shopping for insurance it is important to understand the difference between the two policies.

Term insurance covers the policy holder for the life of the policy, while the premiums are being paid. Let’s break that down; say for example you buy a term life insurance policy for a period of 30 years and you have paid the premiums regularly but you lose your job and stop paying and you die a year after, your beneficiaries will not be able to collect on the policy.

This type of insurance comes in several different categories which include:

• Level term which guarantees that you pay a fixed premium for a set period of time, up to twenty years.

• Annual renewal term policy grants policy holders the option to renew each year but the premium typically increases at renewal.

• Decreasing term pays a death benefit that decreases over time. For example, if you are young and have a young family, a substantial policy amount would be beneficial to your family as opposed to an older person with adult children.

On the contrary, whole life insurance is meant to cover you for the duration of your life. This type of insurance policy generally charge you a fixed premium amount every year, and it is typically much more expensive than term insurance. When it comes to term vs whole life insurance, the higher premium that you pay with whole life is a combination of term life and a surplus amount that goes into an account that pays interest and as a result this account accumulates a cash value.

Over time, the money that grows in the interest account causes your premiums to decrease over time. Some accounts grow enough value that the interest payments can pay off the premium for you. You do not lose your coverage, you just stop paying out of pocket for the premiums. The interest that is generated in these accounts is earned because whole life insurance companies invest the money in the certain investments like stocks, bonds, and mutual funds.

When it comes to term vs whole life insurance, a potential policy holder should research various companies in order to determine which policy would be best suited for their personal and family needs. For example, if you are under the age of 50 and are in very good health, you can get a relatively inexpensive term life insurance policy. Needless to say, after that age, the premiums tend to get more expensive. However, the same goes for whole life insurance policies. Additionally, you should also research the actual company that you plan to purchase the policy from and make sure that they have good ratings. Read the terms and conditions carefully and if you are unclear about something, contact an independent licensed agent for more clarity.

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