WE A NSWER:
Life insurance policies come into two general types: term life and whole life. It is important that consumers know the difference so they can get the one that fits their needs best.
What is the difference between term and whole life insurance?
Characteristics of whole life insurance
- This type of policy offers permanent, lifelong coverage. It is in force until the insured individual reaches 100 years old.
- This type of coverage, as with all types of permanent life policies, has a cash value component that has potential for growth under a tax-deferred status.
- For many financial planners, whole life policies can be excellent investment vehicles, as the policyholder can make withdrawals and borrowings against the cash value. It can also be serve as a form of collateral when applying for a bank loan, or as a source to fund the education of their children.
- Under a participating whole life coverage, the policyholder may receive dividends if the carrier experienced a positive financial year.
- Once established, premium payments remain level and
do not get changed by external factors like the individual's state of health. Unlike term policies, payments can be much higher at the onset but decrease as the policy ages.
Characteristics of term life insurance
- This type of coverage is a good choice for consumers who are looking for a short-term insurance solution.
- The cost is comparatively cheaper especially for younger consumers. As they grow older the cost to insure also increases proportionately.
- Unlike with whole life policies, term life coverage does not include a cash value feature. It also does not offer living benefits. When it reaches expiration there is no residual value. Any payouts are made only when the insured consumer dies within the policy term.
Term life vs. whole life insurance - which is a better choice for you?
Your needs and situation should be the basis of your decision.
On the other hand, many consumers look to whole life insurance because they want a lifetime of coverage along with the advantage of having death benefits.