Which is Which: Term Life vs Whole Life

this post answers the following questions
1. What reason some people only purchase life insurance?
2. What are the things insurance agencies considers before they agree to give you life insurance?
3. What is life insurance?
4. What is whole life insurance?
5. Why is it that whole life insurance is the most expensive type of insurance?

Buying life insurance is not as simple as shopping for the policy which offers the best face value and then paying the premiums. There are various types of insurance policies which you can choose from. But from among the bunch of policies which you can take out, there is no more animated debate than whole life vs. term life.

whole life vs. term life

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Do you qualify for life insurance?

Basically, individuals who are earning income should have a life insurance policy. In fact, meticulous parents follow this rule of thumb so strictly that they take out a policy on every kid that completes college and moves on to find a job. In this sense, you do not need to have dependents as incentive to purchase life insurance. In fact, some people only purchase life insurance to ensure that their debts are settled in the event of their untimely demise.

Before any insurance company would agree to insure you, you need to undergo a medical check-up which will basically screen for high cholesterol and blood glucose levels. Your insurer will also go through your medical history, credit rating and ask about your lifestyle choices including smoking and drinking. Age is also a major consideration for insurance companies. All of these factors will not just determine if you’re eligible for life insurance but also the cost of your premium.

What is term life insurance?

In a nutshell, term life insurance provides a person with coverage for a specified period of time, i.e. 10 or 20 years. Should the insured individual die within that coverage period, the insurance company pays beneficiaries the face value of the policy. While the policy can be renewed, once the policy coverage ends and you’re still alive, you get nothing. Despite this, term life insurance provides more affordable premiums compared to whole life insurance. This kind of policy is perfect for individuals who only need temporary insurance to protect present obligations like sending a kid through college. Most term insurance policies can be converted into whole life policies.

What is whole life insurance?

Aptly named, this form of policy lasts all throughout your life. While this type is the most expensive, it does come with a built-in cash value. This means that while you contribute to your policy, you’re also helping your cash value grow through earnings from interest. You can choose to borrow against this cash value or surrender your policy and get the cash value in hard cash. The catch is that you need to be more religious with making payments with whole life insurance than term.

Brian Foster is an underwriter for 20 years. Learn how he discusses the difference between whole life vs. term life.

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