Term Life Insurance Vs Whole Life Insurance " Major Differences | Insurance

Term Life Insurance Vs Whole Life Insurance " Major Differences

Written by Eddie Lamb

Monday, 25 January 2010 18:09

by EddieLamb

Whole life insurance is also known as cash value and universal life. It is the original kind of life insurance and has been around for about a hundred years. Term, which is much less expensive and more affordable, is a fairly recent innovation. Here are the basic differences between term life insurance vs whole life insurance.

First, let's talk about term insurance. It got its name because when you buy a term policy, you are covered for a specific "term". This term, or length, of the policy can vary between ten and 40 years and your age will usually dictate the length of the term for your policy, although some insurance companies only sell one type of policy such as ten year policies.

Term policies are very affordable as compared to whole life policies because with term, you are only paying for a death - or burial - benefit. Unlike whole life or cash value, you are not using your insurance policy as a form of savings or investment portfolio. A typical term policy is about 65% cheaper than the same policy purchased as whole life.

With term, however, if you survive the term of the policy, you don't get any refunds as some people think. You pay your premiums, and both you and the insurance company are gambling that you don't die. With whole life, your policy covers you for of course you whole life. The drawback is that you must keep paying premiums for the rest of your life, and if you took out your policy at an early age, you could actually be paying more than you should for a simple death benefit.

Now, let's say you want to check out whole life policies. For $250,000 coverage for each of you, you'll first need to buy two separate policies, doubling your expense. Your premiums each month will be at least $500 for both policies. If you have kids, again, a separate policy for each one.

With whole life, one reason it's so expensive is because it's set up to act as a savings account as well. When you buy your policy you are asked to choose funds from the insurance carrier's limited selection, in which to invest. Your agent tells you your investment will see a 15% return each year, but what he doesn't tell you is that you only see a fraction of this - about 3%. The insurance company keeps the rest!

Whole life payouts are confusing to the policy holders as well because when the policies are originally purchased, the insurance agent rarely explains to the person what happens when a claim is made. With this type of insurance, you only get the death benefit. So when you die, any "cash value" built up is not sent to your family. What happens to it? The company keeps it! Again, this is clearly stated in the policy but the carriers know that people don't read these.

The only person who benefits from your whole life policy is the insurance agent who makes incredibly high commissions each month because you are overpaying for the policy.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

You can use the term life insurance calculator to locate the best level of coverage quickly! When comparing term life insurance vs whole life insurance, a person will be able to see the benefits and advantages of each type of coverage instantly!