Simplifying the Term Life vs. Whole Life Insurance Comparison
Making the term life vs. whole life insurance comparison is increasingly common these days, since the two types of insurance are among the most popular choices. Understanding the differences between the two types of insurance makes it easier to decide which is best for your personal situation.
Term Life vs. Whole Life Insurance – What is Term Life
Term life is perhaps the simplest of all life insurance policies. You pay a set amount, over a prescribed period of time, to receive a specific death benefit. The premium and death benefit remain constant over the term of the insurance policy. If you die during the term, your relatives receive the death benefit free of taxes. If you don’t, the policy is extinguished and you become uninsured. Term insurance usually varies between 5 and 35 years, with 20 years as the most popular choice, according to insurance experts.
Term Life vs. Whole Life Insurance – What is Whole Life
Whole life has recently become the most popular type of life insurance. Unlike term, whole life is permanent life insurance. You choose a death benefit and the company charges a premium that remains constant throughout your life. As long as you continue to pay the premium, the death benefit is guaranteed. Whole life also generates cash value, which is not the case with term insurance. The insurance company has control over the investments used to generate cash value for the whole life policy. You can get a low-interest loan from the cash value of the policy but you cannot change the premium or the death benefit once the policy has been purchased.
Term Life vs. Whole Life Insurance – an Analysis
Your personal situation and needs will dictate your insurance decisions, but the main reason most people buy whole life insurance instead of term life is to be guaranteed a death benefit. With term insurance, it’s quite possible – and the insurance company is betting on this – that you will pay the premiums for the entire term and get no payoff at all. A main reason that people choose term insurance instead of whole life is a matter of economics. Whole life insurance costs a lot more than term insurance. So by paying the lower premiums for term insurance, you still take care of your dependents during the term of the policy. After the policy expires, however, you must shop again for insurance with the realization that there are no inexpensive choices anymore. Considering the term life vs. whole life insurance comparison, if a lifetime of protection is the main goal, then whole life insurance may be the best choice. If money is limited and the goal is simply to make it through the term of the policy without being unprotected, then term insurance may be the right answer.