Term Life Insurance vs. Whole Life Insurance

By: Dan Hughes

There are two main forms of life insurance that people may have to choose between. These two types include term life insurance and whole life insurance, and, for the most part, people have no idea which type of life insurance is best for them.

With term life insurance, you are only covered for the life of the policy, while you are still paying the premiums, of course. Basically, this is the policy that makes the most sense for the majority of people out there, especially the couples that have kids. A life insurance policy is only intended to help the ones that have others dependent upon the life insurance holder. You do not want to continue paying premiums on your life insurance once your kids are no longer considered dependents.

With whole life insurance, on the other hand, the life insurance policy is designed to cover you for your entire life. It combines a term policy with an investment component, which could be in bonds and money-market instruments or stocks. The policy builds cash value that you can borrow against, which is why the premiums generally cost more than what term insurance would cost. As this “accumulation account” grows over time, the cost of your premiums may decrease over time.

Basically, what you need to ask yourself when looking for life insurance, is who you need to insure should anything happen. If you are generally healthy and have older kids, whether you may be single or not, whole life insurance probably is not the best way for you to go.

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Ten Things You Should Know About Life Insurance

Article by: CNN Money
Posted by: Madeleine Brooks

1. All policies fall into one of two camps.

There are term policies, or pure insurance coverage. And there are the many variants of whole life, which combine an investment product with pure term insurance and build cash value.

2. Insurance is sold, not bought.

Agents sell the vast majority of life policies written in the U.S. because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole-life policies.

3. Whole life is expensive.

Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can't afford an adequate face value, leaving themselves underinsured.

4. Whole-life policies are built on assumptions.

The returns quoted by the agent are simply guesses - not reality. And some companies keep these guesses of future returns on the high side to attract more buyers.

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Deciding Between Whole Life and Term Life Insurance

By Michael Collins

When choosing life insurance, one of the most important decisions that one must make is whether to purchase a whole life policy or a term life policy.

Whole life policies, once enacted, will cover the policyholder from that day until the day that they die. This is good for policyholders because they will no longer have to worry about dying unexpectedly and being uninsured. However, this comes with a price. Whole life policies are far more expensive than term policies, because lifetime coverage guarantees payment upon the death of the policyholder. Whole life insurance is essentially a savings account. The policyholder pays the insurance company throughout the duration of their life, who will pay the beneficiary upon the policyholder's death. Whole life policies are considered assets, so they can be borrowed against or surrendered early for cash.

Term life insurance are generally considered to be a more cost-effective option, especially for younger people. Terms can be anywhere from one to thirty years. Because the policy can expire, there is a chance that the insurance company will not have to pay, so rates are lower; although they get higher with age. A major drawback to term, however, is that it is not considered an asset and has no cash value.

Overall, both types of life insurance have advantages and drawbacks. However, I believe that term life insurance is superior, mainly due to the cheaper rates. Whole life insurance may be attractive, but the money that would go toward the high rates could simply be invested or put in a savings account by the policyholder and have a similar effect.

References:
http://www.wisebread.com/choosing-life-insurance-term-or-permanent
http://insurance.lawyers.com/Choosing-Life-Insurance.html
http://www.smartmoney.com/personal-finance/insurance/term-or-whole-life-8011/