Term Life Insurance or Whole Life Insurance: Which is the Better Choice? Author:    Posted under: Life InsuranceLife Insurance questions answeredLife Insurance Types

Term Life Insurance, as it denotes, is “a type of insurance with no cash value and designed for specified time such as 5, 10, 15, or 20 years.”*  After the defined period of the policy, the coverage expires and the client must now choose to forego the policy, or obtain further coverage through a different one altogether.  If in case the policyholder dies during the terms insured, the beneficiary then gets the amount in the policy.

Term Life Insurance is regarded as the most inexpensive of all life insurance policies.  It is actually a maximum death benefit that could be availed as low as the minimum dollar.  It also provides coverage for financial responsibilities to its holder, such as debts, mortgages, or college education, depending on the need of the user.  For term life insurance, no part of the consumer’s money is used for investment by the company.  The term policy premium increases as the insured grows older.  As with all other insurance policies, the insured has to go through a physical exam in order to be certain that they are insurable.  As stated above, it has a specified time frame, but the most popular are annual, 7-year, and 10-year policies.  The annual types increase slightly every year, while the 7- and 10-year plans remain the same for the period covered.

Whole Life Insurance, on the other hand, refers to insurance that lasts for an insured person’s lifetime.  As opposed to term life insurance’s fixed death benefit, whole life insurance has a cash value that earns more over time.  It can be used to accumulate wealth, and is considered to be the most basic form of cash value insurance.  The premium that you pay the company is used in investing in fixed-income securities, namely, stocks, bonds, and other money-market instruments.  Your beneficiary will receive a fixed death benefit, along with the balance of the savings account that has grown over time.

It is the family’s responsibility to look after their financial well-being in the long term.  It really depends on your needs, on what type of insurance you will be getting.  For term life policies, it is possible for you to outlive your policy.  It is just “pure insurance protection” because it does not build cash value over time.  If you are looking for a more permanent insurance plan, then whole life insurance may be better for you.  There are some who criticize whole life insurance. How exactly do you decide which one is for you?

Consider the following factors.

Determine how much you need. It may be projected based on your total assets minus your liabilities, and/or obligations that your family may have.  By obligations, these may include loans, mortgage payments, future educational expenses, future family expenses, and the like.  By determining how much you would actually need, you can now think about how much insurance you need to have, and go from there.

Decide on a policy you want to get. Based on the amount of money that you need, determine now how much you can shell out on a monthly or an annual basis for your insurance.  Would you rather wait it out in the long term, for an investment to reap its rewards, or would you rather have a sure amount to use after a shorter amount of time?  The answers to those questions will definitely aid you in your search for an apt policy for your family.  Bear in mind that although there is a cash value associated with whole life insurance, you may not be able to see the returns in your expected time frame.  Both will be able to give you the cash you need, but in different ways.



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