Comparing Term Vs Whole Life Insurance

Choosing the perfect life insurance can be a terrible conundrum. Insurance companies display all kinds of glitzy catch phrases and marketing terms to push their products to consumers that it is very easy to get lost in the maze. When all these are stripped to the bone, however, consumers will find out that they are basically faced with two stark choices-term Vs whole life insurance. Choosing any of these two life insurance schemes is not a question of chance. It is important to arm yourself with the right kind of information on what each of these entails and then use this information to make the best choice of life insurance program that will be appropriate for your needs. Here is a simple guide and comparison to help you sort out the best package for you and your family.

Term Life Insurance: What is it?

Also called the “pure” life insurance, term life insurance refers to a life insurance coverage that is purchased for a specific term or period of time.  The term life insurance will pay out a death benefit if the policyholder dies within the term or period of the life insurance coverage. The policyholder however loses their benefits when they are still alive at the end of the term of the policy coverage.

The merits of term life insurance

The term life insurance coverage has its advantages. The term life insurance premiums are on average lower compared to the whole life insurance premiums. There is a great deal of flexibility on the duration over which you can purchase term life insurance which can range from 1 year to 30 years.  New flexible accelerated benefits programs for term life insurance now allow term policyholders to receive benefits before death in the event they are suffering from a terminal illness.

The drawbacks of term life insurance

The biggest risk with the term life insurance program is that the policy could end before the death of the policy holder in which case they lose their entire premium. Buyers of term life insurance should explore the automatic renewal rates that are offered by some insurers.

Whole Life Insurance: What is it?

As the name suggests, the whole life or term life insurance will last your entire life and also incorporates an investment element in the form of accumulated savings.  The extra premium goes into savings which will increase at a rate that is similar to your mortality rate. The savings are stored in a separate cash account by the insurer.

The merits of whole life insurance

Unlike the term life insurance plan, the whole life insurance offers coverage for an entire lifetime.  It has an investment element that you can even borrow against.  It would be most suitable for buyers with big estates as it can help offset hefty estate taxes.

Drawbacks of whole life insurance

The whole life insurance is a costly option with some of the highest premiums in the industry.

How to decide between term and whole life insurance

The dilemma over term vs. whole life insurance coverage is always an enduring one. When it comes to the insurance coverage, there is no one-size fits all solution and each buyer must choose a product that will meet their precise needs. Each of these has significant risks and benefits and you are the one who will know what suits you best based on your specific needs.