If purchasing life insurance is what you want to do, then an overview of the available types should be helpful. In this article, you will learn about the variations on whole life insurance as well as the difference between whole and term life insurance.
Looking at what is meant by their names is probably the easiest way to understand the difference between whole life insurance and term life insurance. When you purchase whole life insurance, it will pay a benefit when you die and as long as you own the policy, then you are covering your whole life. What that benefit is depends on the value of the policy at the time of your death, but you own the policy even if you are no longer making payments on it. Also accumulating a cash value on a tax-deferred basis is whole life insurance. There's also the fact that whole life can pay dividends throughout the life of the policy.
On the other hand, term life insurance is purchased for a certain term or period. As long as you die within that period, term life insurance will pay an agreed upon amount to your beneficiaries. It will not pay if you cease to make payments or if you die after the term has expired. Another thing to keep in mind is that term life insurance has no cash value.
It's important for you to know the two other aspects of whole versus term life insurance. Premiums for whole life insurance are higher to begin with but remain steady over time and this is the first aspect you need to know about. On the other hand, the premiums for term life insurance will increase over time even though they are lower near the beginning of the policy.
Being able to borrow against the cash value of a whole life insurance policy is another aspect. Since it does not have a cash value, this is not possible with term life insurance.
Whole life insurance has two variations and you need to consider them as well. A more flexible form of whole life called universal life insurance is the first variation. In order to suit your financial situation, universal life insurance will allow you to adjust, within certain limits, the premiums and the amount of benefit. To make this possible, the premiums should be placed in a fund that will accumulate based on the interest rate. This type of policy, just like a normal life insurance, has a cash value that can be borrowed against.
Variable life insurance would be the second variation on whole life insurance. This type is similar to universal life insurance, except that the premiums in the fund are tied to the financial markets rather than to interest rates. In this type of insurance, the potential for growth is greater but the potential for loss is greater as well.
As you can see, there are some choices to be made when considering the purchase of a life insurance policy.
Looking at what is meant by their names is probably the easiest way to understand the difference between whole life insurance and term life insurance. When you purchase whole life insurance, it will pay a benefit when you die and as long as you own the policy, then you are covering your whole life. What that benefit is depends on the value of the policy at the time of your death, but you own the policy even if you are no longer making payments on it. Also accumulating a cash value on a tax-deferred basis is whole life insurance. There's also the fact that whole life can pay dividends throughout the life of the policy.
On the other hand, term life insurance is purchased for a certain term or period. As long as you die within that period, term life insurance will pay an agreed upon amount to your beneficiaries. It will not pay if you cease to make payments or if you die after the term has expired. Another thing to keep in mind is that term life insurance has no cash value.
It's important for you to know the two other aspects of whole versus term life insurance. Premiums for whole life insurance are higher to begin with but remain steady over time and this is the first aspect you need to know about. On the other hand, the premiums for term life insurance will increase over time even though they are lower near the beginning of the policy.
Being able to borrow against the cash value of a whole life insurance policy is another aspect. Since it does not have a cash value, this is not possible with term life insurance.
Whole life insurance has two variations and you need to consider them as well. A more flexible form of whole life called universal life insurance is the first variation. In order to suit your financial situation, universal life insurance will allow you to adjust, within certain limits, the premiums and the amount of benefit. To make this possible, the premiums should be placed in a fund that will accumulate based on the interest rate. This type of policy, just like a normal life insurance, has a cash value that can be borrowed against.
Variable life insurance would be the second variation on whole life insurance. This type is similar to universal life insurance, except that the premiums in the fund are tied to the financial markets rather than to interest rates. In this type of insurance, the potential for growth is greater but the potential for loss is greater as well.
As you can see, there are some choices to be made when considering the purchase of a life insurance policy.
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