Difference Between Term and Whole Life Insurance
Term Life Or Whole Life, What’s The Difference?
All life insurance policies are not created equally and that is a good thing. Different people need different policy options at different times in there lives. Just as in life, one size does not fit all, so it is when it comes to life insurance policies. Life insurance should be a requirement, just like car insurance is. Nobody gets out of this world alive and those leaving seldom leave here without owing large sums of money to someone. Still, there are many people who either do not understand how important life insurance can be or they just don’t want to think about.
A whole life policy is a policy that continues without interruption for as long as the premiums are paid on time. Whole life policies consist of two parts, the death benefit and the cash value. The death benefit on a policy pays out the entire face amount upon death providing certain stipulations have been meet. The cash value is the amount you could get if should you decided to cash the policy in prior to the maturity date. Whole life policies can be considered investments as they do accrue interest.
Term life is a life insurance policy that only provides coverage to the policyholder for a certain length of time, or term as it’s called. Term life policies come in three different varieties and the term length is normally between one year of coverage and thirty.
The three different types are:
- Level Premium Term: This is the most common term insurance policy. This is the cheapest kind of policy and the premium remains the same for the entire term.
- Decreasing Term: Is normally used as protection from some type of debt payout such as a mortgage or college tuition.
- Increasing Premium Term: A policy such as this is has a face amount that remains the same but the premiums go up with a person’s age. It’s a good policy to consider when health conditions are at issue as they normally do not require proof of good health.
Term policies are cheaper than whole life policies, but they are a gamble if the term expires before death. Each renewal of a term policy requires a new health exam and if you have developed some type of disease like cancer or heart disease you may not be able to renew. If you are accepted, expect to pay extremely high premiums. For this reason taking what’s known as a convertible term insurance policy from the very beginning would be an excellent move.
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