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Which of the two life insurance types do I choose: Term Insurance vs Whole Life?
These are the two choices available to you if you are considering to buy life insurance.
First let’s look at the differences between Term insurance vs Whole Life insurance .
Term Life Insurance Coverage:
Basically term coverage is life insurance for a period of time . You are protecting your life for a period of time. The monthly term insurance premium does not fluctuate during that period of time .
The term life insurance policy can be purchased in increments of one year to 30 years . Your life insurance quote will be giving you a quote of your set monthly premium .
When completing the term policy a beneficiary will be decided upon and if the death of the insured occurs the beneficiary will be paid the amount listed on the policy .
Term policies are much less expensive than Whole Life Insurance policies .
Permanent Coverage / Whole Life Insurance:
With this type of life insurance you combine life insurance and add a savings or investment portion onto it . The insured pays a monthly insurance premium for the rest of his/her life . When you take away the investment portion it is just a lifetime of life insurance .
There are investments you can choose from in the life insurance company for your whole life insurance policy:
- Bonds
- Money-market
- Stocks
Like Term Coverage you will be paying fixed monthly life insurance premiums but the coverage for whole life insurance is much, much more expensive.
Here are additional types of Whole Life Insurance :
- Traditional Whole Life Insurance
- Variable Life insurance
- Universal Life Insurance
Portion of your expensive monthly premium will go into the investment attached to your policy . You will have some investment options held by the life insurance company that holds your policy. When the investment grows you then will have the option to take a loan out on the investment but the funds must be paid back with interest .
After the age of 50 the cost to insure someone gets much more expensive regardless of the type of insurance . Term Life Insurance companies are not likely to issue policies to people older than the age of 65 due to the higher cost and risk.
So Term Insurance vs Whole Life Insurance? How to decide on which type of life coverage is best?
Term insurance is pure insurance like car insurance . When you compare whole life to term insurance, term insurance is much less expensive so you can take the savings and invest it anyway, anywhere you would like .
Whole Life Insurance is Life Insurance plus an investment component . With the limited number of investments available for your whole life insurance policy you are taking a higher risk with whole life coverage.
Our recommended strategy :
Check the difference in prices of whole life coverage vs term coverage if you are serious about buying life insurance. With the difference in cost take those savings and automatically invest it in mutual funds, stocks, savings account, CDs, bonds or money market.
You’ll have life insurance and full control of your money (you won’t need to borrow it if it was a term life insurance policy) .
Comparing Term Insurance vs Permanent Whole Life Coverage .
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