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Term Life Insurance: The Differences Between Term And Whole Life Policies
By: Dan Johnson
Life Insurance quite generally is a policy whereby you pay a company a premium
so that if you die while covered your descendents receive financial benefits.
Within the larger Life Insurance window there exist two broad categories of
policies, Term and Whole life (Whole Life is also known by the equivalent term
Universal Life Insurance). Term Life is exactly what its name implies, valid
only for a certain period of time, whereas Whole life lasts the duration of
one's life.
Price Differences
Because Term Life has a structured beginning and end, typically from 1 to 30
years, it is normally quite a bit cheaper than Whole Life. That is because under
Whole Life it is assured that the insurer will eventually pay out (as we all
eventually die). Under Term Life, however, there is a very good chance that you
will live through the period of the policy and thus the insurance company can
simply take your premiums without ever having to pay out anything.
Benefits Differences
Another important distinction between Term and Whole Life is the fact that at
the end of the Term Policy, the policyholder is left with nothing but his own
health. On the other hand, with a Whole Life Policy the insurer often takes a
portion of the premium and places it into a savings account for the
policyholder. In case of emergency later in life, the Whole Life Policy Holder
can access that money to meet some needs while still living. As you can imagine,
the Insurance Company raises the price they charge for access to all of this.
Deciding Between the Two
So, how does one decide between Term and Whole Life Insurance? To best answer
that question it is important to ask why you need the insurance in the first
place. Is it because you have young children and a spouse who does not have the
earning potential to get your children through college? Or is it because you
work in a dangerous industry and will regularly face the prospect of death over
the next few years? These are both excellent candidates for Term Life Insurance.
In the first case, it is important that the provider ensure enough financial
support for approximately 10 years and then the need drops off, while the second
example may require a shorter 3 - 5 year Term Life Policy.
On the other hand, let's imagine that you have a mentally handicapped person you
will support indefinitely, or a spouse that has never worked at all. These may
be better candidates for Whole Life as the financial need they feel responsible
for extends not only to some definite period in the future, but as long as the
other person is alive. Under these circumstances, paying the premium for Whole
Life might be worthwhile.
Term and Whole Life Insurance fill an important void in many lives by providing
some assurance that in case of an accident, loved ones will not be left
stranded. It is important to remember, however, that the policies are not
panaceas. The savings rate on Whole Life Policies is usually dismal compared to
open market rates, and with Term, you are making payments on a product you may
never use. Ultimately, the decision to purchase either of these products should
involve weighing your personal risk and health, your current and expected
financial situation, and alternative uses for funds you have earmarked for a
policy.
About the Author:
Dan Johnson enjoys writing about term life insurance. Visit
http://www.tlilowdown.com/ to learn more. |
