The Differences Between Term Life and Whole Life Insurance

There’s no question that life insurance is a great product to have in your insurance portfolio, but many people put off buying it because there are so many options available. While that’s true, it shouldn’t stop you from taking time to compare insurance rates and buy a policy as soon as possible.  To get you started, here’s a brief introduction to the two main kinds of life insurance:

Term Life Insurance

A term life insurance policy allows you to have coverage during the years when your family relies on your income the most: when you’re young, just gaining traction in your career and may have young children. Although it can be purchased at any time in your life, many families buy 10, 15 or 20 year policies to have in case a parent dies prematurely. This allows the family time to grieve without worrying about finances.  When you compare insurance rates, you’ll find that term life is very inexpensive.

The main drawback is that when the term expires, you have nothing to show for your investment besides the peace of mind knowing that if something had happened, your family would have been taken care of financially. At the end of the term, you can buy another policy, but since you’re older, your rates will be higher.

Whole Life Insurance

A whole life insurance policy will cover you for the rest of your life, provided you continue to pay your premiums. What’s unique about this policy is that it builds up a small cash value, so if you ever need money you can borrow it from the money which has accumulated in your policy. Of course, you’ll need to repay the money before a claim is made on the policy, or else the amount which you took out will be deducted from the final value. You can also take the money out if you decide to cancel your policy.

One downside is that if the cash value is kept by the insurance company when a claim is filed.  For example, if Joe collects on his wife’s $500,000 policy, and there’s also an $8,000 cash value, he only gets $500,000. The $8,000 will only be paid out to you if you cancel your policy. Because a person can cancel their policy and still get back the cash value, whole life is more expensive than a no-frills term policy.

Which one is best for you?

For people who are young and want security for their family as they start off in life, term life policies provide the protection they want at low costs. Older people who aren’t yet financially secure may benefit from whole life policies since they don’t expire.

Now that you know the basic differences between term life and whole life insurance and you’re ready to purchase term or whole life insurance, be sure to compare insurance rates first before choosing an insurance company. You could save lots of money on your premiums.