I've had a lot of folks ask me what the real difference is between Whole & Term Life Insurance and which is the best option
for them. As much as I enjoy helping, the best that I can really do is explain the difference between the two and the pro's and con's of each type of policy. This way, the consumer, to make an informed decision before you buy.
Whole life insurance gives you insurance coverage for your whole life, as long as your policy remains in good standing. You'll have insurance coverage until the age of one hundred or until you die, whichever occurs first. Some of the pro's of a Whole Life Insurance policy are that you will also build an account that has actual cash value. It works like this. A portion of the premium payments that you make are used to buy life insurance, while the remainder is placed into a savings account that will accumulate interest. You may borrow against this account if you need to, but you have to pay it back. This gives you a bit of piece of mind in case of unexpected vehicle repairs, hospital stays, ect. or any other of lifes little emergencies.
Some of the cons of Whole Life Insurance is that it's not cheap. The premium payments for whole life will be much higher than a Term Life policy would be. Another concern is that as you get older the savings account feature becomes less attractive For a younger person or couple, this makes more sense because they have their entire lives ahead of them, but for someone middle aged or above, I'd buy Term and invest elsewhere.
Term Life Insurance is what it sounds like "Term". This means that it covers you for a specific period of time or a Term. You could buy a Recurring Term, "20 Year Term", Guaranteed Term, ect. Did I explain this well enough?
Term Life Insurance coverage is also known as "pure life insurance" because that's all you're buying. Here are some more differences between Term And Whole Life unlike Whole Life policies, there's no savings account that accumulates or to borrow against. You only pay for insurance coverage.
Another con is that, as stated above, A few Term Policies such as Guaranteed Term, can be rolled over, but that's another story. You need to visit my website below and I explain it there.
Most Term policies are only for certain time frames. An example of how this can be used would be for the "breadwinner" of the household who is middle aged, the kids are grown, but still in college, he or she has been paying on their major assets, like their home, ect. for several years and they need some security to make certain that if anything happened, everything would be taken care so that the family could go on without any issues, other than the loss of their loved one. A 10 or 20 Year Term Policy might be a good option for the fictional example above, depending on their living arrangements.
My hopes are, you understand now why it's difficult to give financial planning advice to people without knowing their specific circumstances. Just learning the differences between these two more popular types of insurance policies should put ahead in the game of life insurance. Best to you!
By: Joe Stewart