Understanding Term and Whole Life Insurance Policies

Posted by jorn | Posted in | Posted on 23:14

There are essentially two different types of life insurance you should be familiar with. While there is a debate as to which of these two types of policies is best to have, there are people who may benefit from each of them. Understanding the differences between term and whole life insurance policies can help you make a better decision when it comes time to buy.
Term life insurance is the most basic type of life insurance. It covers life only. When the insured person dies, it pays the face amount of the value of the policy to the person who is named as the beneficiary. Term life insurance can be bought for periods anywhere from one year to thirty years.
In contrast, whole life insurance is more than just an insurance policy. Whole life policies combine a term life insurance policy along with an investment. This investment can take different forms, from stocks to bonds to money-market accounts. As time goes on, your whole life policy builds cash value.
That cash value is what makes whole life insurance policies attractive to some. You can borrow against that cash value at a later time. In some ways, this forces the policy holder to create a savings of sorts, and they then think of a portion of their premium as setting aside money for later in life.
The premiums for term life insurance are, naturally, lower than those for whole life policies. If you’re in good health and under the age of 50, term life insurance can be relatively inexpensive. In fact, term insurance is so inexpensive that you can often get a large amount of coverage for just a few dollars a month. On the other hand, the cost of whole life insurance policies can be quite high, with fees and commissions to be paid that go neither to the life insurance policy itself nor to the investment.
Deciding whether a particular whole life policy is a good value comes down to one thing: the rate of return. You need to calculate how much the policy will yield after all of the surcharges and all of the extra fees have been taken out. Taking the time to fully analyze a particular policy will help you to decide whether you should go with a whole life policy or a term policy.
Ultimately, the choice between term and whole life insurance is a personal one, and one which will depend on your own desires, needs and objectives.

Comments (1)

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