Term life insurance and whole life insurance are two primary types of coverage that differ significantly. One of the most common questions we hear is, “What are the differences between the two?” The follow-up question is usually “Which of the two is a better choice?” Below is a brief explanation of these two types of life insurance.
Term Life Insurance
Term insurance, or protection only insurance, is the cheapest type of life insurance cover and guarantees a payment of a fixed amount should you die within a specified period or term. A term policy is life coverage only. On the death of the insured, it pays the face amount of the policy to the named beneficiary.
You can buy term for periods of one year to 30 years. Premiums for term insurance are downright cheap for people in good health up to about age 50. After that age, premiums start to get progressively more expensive. The same holds true for whole life policies, though people who need coverage starting in their 60s and beyond may have no alternative but to buy whole life. Most companies simply won’t sell term policies to people over about age 65.
If you survive the term, no payment will be made. One great thing about term life is how flexible it is. You can add additional coverage in the form of riders that can pay benefits for long-term care, the death of a child, accidental death, and disability premium waiver. Term life is intended to last a certain period or term, but you can usually convert your term life policy to a permanent policy or renew your term policy at the end of its term.
Whole Life Insurance
Whole Life covers you for the whole of your life rather than a fixed term and pays out on your death. Whole life combines insurance with an investment component. A whole life policy has two elements: the mortality charge, the part of your premium that pays for the insurance coverage, and a reserve, the investment component that earns interest. As you age, the portion that goes into the reserve decreases while the portion that pays for the mortality charge increases. The investment could be in bonds and money-market instruments or stocks. The policy builds cash value that you can borrow against.
Whole life is expensive, and if you’re on a limited budget, you may not be able to afford all the insurance coverage you need. The policy’s returns will fluctuate with the markets. The extra expense will only be worth it in the end if the policies were a sound investment vehicle. The three most common types of whole life insurance are traditional whole life policies, universal and variable.
As you can see, term life insurance is a good source of protection for most people and many different situations. From young families to single parents to business owners, the low cost and simple protection offered by term life insurance is often the best choice. View quotes for term life insurance to find out affordable coverage can be.