Term Vs. Whole Life Insurance
Life insurance is usually considered a low priority subject for many people
. The fact is life insurance, whether it is term or whole life, really does require your understanding to use it properly. Take a moment to see how insurance can be a useful financial product for you and your family.We will look at the two most common types of life cover, term and whole life.
Whole Life Assurance
The original concept of whole life insurance was to have monetary coverage for surviving partners in case of death, plus a long term savings plan.
What happens is part of your monthly premium goes into a savings account which is part of the policy. When you reach a certain age (usually over 60 years old) you can do a couple of things. You could either cash in your policy for the amount saved, or you could let the cash value continue to pay the premiums for the life portion of the policy.
Cash value is what the savings portion of this type of insurance policy is called. Many of these policies have a borrowing feature. To keep the policy enforced you have to continue paying the monthly premiums, but you still can borrow money against the cash value.
As you can see whole life policies have a lot of flexibility. They cost a little more, but for people who have trouble saving and need a moderate amount of life coverage it is a pretty good product.
Term Insurance
Term insurance is a type of life protection that you essentially rent. These policies can run for a term as long as 20 years. The younger you are the less it costs. Of course your medical condition plays an important role in the calculation of premiums.
Term insurance generally has a specific purpose. For example: You and your partner have a home with a mortgage. You both work and contribute to the monthly mortgage payment. If one person dies, besides the emotional loss there is a financial loss too. Term insurance fills the void in a case like this. The plan is as you pay down your mortgage the need for term insurance diminishes because your debt is less.
Some people who have a lot of money use term insurance to pay for estate taxes when they die.
Term insurance does not have a savings component to it. It is strictly a life policy that ends when the term is over or you quit paying the premiums. There is a form of term insurance where the premiums are higher, but at the end of the term you get all your premiums back in cash.
Recap
There are different variations of the basic term and whole life policies. You really need to assess your situation first, then find the right insurance product that fits your budget and needs.
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