Term Versus Whole Life Insurance

I wrote about the types of insurance polices here. Now it's term versus whole life insurance. Term provides insurance coverage for a term period. Whole life provides coverage for a lifetime or until age 100.

Term is much cheaper because it provides insurance protection only. It pays death benefit only if death should occur during the term period. You get nothing after the term. It can be renewed with increase in premium every renewal.

Whole life provides both death and living benefits so it costs more. Death benefit is the sum insured. Part of the premium goes to savings that build up cash values. Cash values make up part of the living benefits. It is usually a participating plan where part of the premium earns dividends. Though not guaranteed, dividends form part of the living benefits and can be withdrawn every year.

Term versus whole life insurance
When do you need one or the other

Let's compare term and whole life insurance, again...

Some people prefer to rent a house or apartment rather than buy a home. That is the same with term insurance. You choose to have temporary life insurance protection. Just bear in mind that term insurance is only for a term period.

Whole life provides good protection at a low cost because premium stays the same. The face amount or sum insured is paid to you at age 100. It is also flexible to end the insurance protection and get the cash values even before age 100. This is good for retirement or education of a child.

Term is good for a business loan payable in, say, five years. You do not want your family to pay for this debt if you are taken out of the picture. A five-year term insurance with a face amount equal to the amount of the loan takes care of the burden.

In the same manner, a whole life insurance can preserve or maximize the value of your business and assets. Your family needs insurance proceeds from your policies to take care of estate taxes and other fees in case of your death. They do not need to sell the business and other assets, unless you specify that in your will. Click here for more information on asset protection.

Knowing the difference between term and whole life insurance helps you make an informed decision to buy which policy is better for your situation. But it is advised that you see a professional adviser. He can help you address your needs.

So term versus whole life insurance? You can get them both based on your needs and priorities...