Term Life Insurance Vs Whole Life Insurance - Know The Difference
In reality, there are few similarities between Term Life Insurance vs Whole Life Insurance other than they both pay out a death benefit
. Term insurance is the newer type; whole life - also known as cash value and universal life - has been around since the late 1800s, although some of the basic tenets have changed and been updated over time.Term insurance is the more affordable because you are only buying insurance for a specific term, or period of time. You are also only paying for the ultimate death benefit. Whole life, on the other hand, is paid for and you are covered for your "whole life". This is definitely not a good investment in a situation where you might buy a policy when you get married in your twenties, and continuing paying until your death at perhaps 94.
If you want something affordable, it's term insurance. Policies are significantly cheaper than whole life policies, and you can even get covered for higher amounts for less money. For instance, a husband and wife can have a term policy for $250,000 each, for twenty years, purchased at age 30, for under $100 a month if they are both in good health.
For a $250,000 policy in whole life, you need to purchase separate policies for a husband and wife - doubling your expenses! The same couple buying whole life can easily expect to pay over $500 a month for the same coverage.
With term, you have the option to renew at the maturation of your policy. This can save you tons of money as opposed to giving up your policy and starting over. Normally, your carrier won't have you undergo in depth physicals or anything like that; you can simply continue on, and your rates will go up in accordance to your overall health and age, but only a fraction of what they'd be if you were to buy a new policy at your new age.
With whole life, one reason it's so expensive is because it's set up to act as a savings account as well. When you buy your policy you are asked to choose funds from the insurance carrier's limited selection, in which to invest. Your agent tells you your investment will see a 15% return each year, but what he doesn't tell you is that you only see a fraction of this - about 3%. The insurance company keeps the rest!
It's never a good idea to mix insurance and investments or savings. With a whole life policy, when you die, all that the insurance company pays out is your death benefit! They keep the investments and cash for themselves. So, if your family thinks they will be well provided for because they are depending on your investment portfolio, they'll be disappointed because there isn't one!
Also, many people think they can borrow from their cash, or savings, in their account - and they can. But what happens is that the insurance company charges you interest! On your own money! And if you die before it's paid back, your death benefit is reduced by that much.
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