Discussion: The Term Life Insurance Vs. Whole Life Insurance

When choosing a life insurance policy two of the main types of plans available are term life insurance and whole life insurance. There are major differences between the two types of policies and this article will assist you with making the choice between term life insurance vs. whole life insurance.

Term Life Insurance

Term life insurance is a policy with a fixed life or term during which payments are usually made periodically (i.e. monthly or annually). At the end of the policies life the obligations of the insurer end, in terms of having to pay out a sum on the death of the insured individual.

Term life insurance policies tend to be the cheapest form of life insurance that can be acquired to provide a significant benefit on the death of an insured individual. The actual costs vary based on the parameters set by the insurer, with factors like age, general health, and smoking playing a major role in determining the actual price. The cost of term life insurance increases the older that one gets, as the chances of dying increase each year, making late life term insurance often prohibitively expensive.

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The specific benefit received can vary greatly and is stipulated by the terms of the actual policy purchased, with more funds being paid out resulting in higher premiums over the contract. Typical amounts paid out under term life insurance can include:

Debt reimbursement to ensure the debts of the deceased don’t pass on to a spouse or dependents
Education costs for dependents
Funeral costs
Mortgage costs
Lump-sum payments

Whole Life Insurance

Whole life insurance (or permanent life insurance) is a policy set up where a set benefit is to be paid out on the death of the insured and does not expire (as long as all required payments are made). The cost to the insured individual is often monthly or annual payments established at the onset of the policy that will not be changed over its life. The value of the policy is often a lump sum payment that is paid out on death or when the insured individual reaches the age of 100.

One benefit of whole life insurance is that it can be a good ‘forced’ saving measure for individuals when planning for their spouse or dependents. The cost of these policies can be high so they do tend to be utilized more by individuals with high income already. The biggest benefit of the plan is that the cost, while high, does not increase over time like term life insurance does. Once the terms are established the cost will remain the same.

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Term Life Insurance vs. Whole Life Insurance

When it comes to purchasing term life insurance vs. whole life insurance the decision typically comes down to cost. While whole life insurance is a guarantee and the cost over your life will be consistent, it is initially often too pricey for many individuals starting a family or whom are recently married. In these cases term life insurance is likely the best route to go to ensure that you guarantee the financial security of your loved ones. As with any major financial arrangement it is important that you do review all of the details so that you have a clear understanding of the terms of your policy and don’t have any unexpected surprises.

By: Jeffrey Glen
Source – businessdictionary