Term Life Insurance vs. Whole Life Insurance

Life insurance novice? Like most beginners shopping for life insurance,your initial dilemma will be making the choice between term life insuranceand whole life insurance. This dilemma is easily resolved by understanding which type of life insurancepolicy complements your family’s overall financial plan.

Term Life Insurance
Term life insurance is the more afford able of the two types of life insurance policies. It is popular because of the extremely low cost and long termcoverage it provides.Most term life insurance policies have premiums thatare designed to remain level for temporary terms of 10, 15, 20, 25 or even 30 years.

How does it work? Each year, a premium is paid to cover the risk of death during that year. The advantages of term life insurance are the low rates and high death benefits. Unlike permanent life insurance policies, term life insurance accrues no cash value. Term life insurance is pure insurance.

The beneficiary will only collect the death benefit if the insured dies before the term life insurance policy expires. If death occurs within the allotted term, the life insurance beneficiary generally collects the death benefit, free of income tax.

Whole Life Insurance

Whole life insurance is a type of permanent life insurance that provides coverage throughout the insured's lifetime, typically to age 100. The policy never ends as long as the premiums are paid per the life insurance carrier’s contract. Whole life insurance has unique advantages. This type of life insurance policy provides a forced savings element that accrues a cash value in the form of dividends, which can enhance the value of the life insurance policy over time.

To put it simply, whole life insurance is a combination of life insurance and savings. Should the immediate need for cash arise, the cash you’ve accrued is available for your use through policy loans. Permanent life insurance can also be used as collateral against bank loans and for protecting your business. In addition, you can surrender the policy and receive its corresponding cash value. However, you should never surrender your policy unless you have backup life insurance protection or an emergency forces the need to surrender the policy.

Due to the nature of permanent life insurance, premiums are much higher than term life insurance policies.

Simplifying the Dilemma

So how do choose between the two types of life insurance policies? Simple. It’s a question of how much you are willing to pay in terms of premiums against the amount of

Remember. A term life policy can give you high coverage against low premiums. This is why term life policies are more popular.