Whole Of Life Insurance And Term Life Insurance Differences
When buying life insurance its vital you get the right policy for your needs
. With a plethora of web sites offering discount life insurance, it's often easy to end up with a policy that is not suited to your unique needs and circumstances.One of the questions that arise time and again is whether a term life policy or a whole of life policy is best, and what's the difference between them.
Term Life Insurance & it's Benefits:
Term life insurance is a bit like leasing a car. You pay cover for a predefined term, and are covered for that term. However, at the end of the term, whether for example its 15 years or 30 years the deal is done and you simply walk away.
This means that term life insurance only offers protection for the duration of the mortgage, and is usually of little value once your mortgage is fully paid off.
However, term insurance is cheap, and the cost can even reduce over time. There are five main forms of term life insurance, and these are as follows:
* The first is level term insurance, and it is the most popular type of cover. This policy has it's premium costs locked in for the full term of the policy, so you pay the same amount each month for the entire term of the policy.
* The second type of term life cover is known as escalating term insurance. This type of scheme means that you pay an increasing amount each year, so the payout at death also increases. They are generally low cost policies, and are more suited to first time buyers and the young. However, they can become more expensive as you get older.
* The third type of term cover is known as decreasing term insurance. With this type of policy the monthly/annual payments stay exactly the same. However, the amount of protection reduces each year.
* The forth type of term life policy is known as increasing term insurance. With this type of term life insurance the benefit on death increases. However, in order to make up for this increase you will need to increase your premiums at certain times, for example on the birth of a child, or as your financial circumstances improve.
* The fifth and final type is known as convertible term insurance. It is a type of term life insurance that you can convert at a later stage into an investment vehicle. The value of the investment is normally based on your health when you originally took out the policy.
Whole of Life Insurance:
Whole of life insurance covers you right up until the time of your death, providing that you keep paying your premiums. It can give a considerable lump sum to your family when you die, and it normally accumulates in value over the years.
This type of policy is more expensive and complicated than term life policies. The investment you make earns some interest each year. So, providing your investment grows, your annual premiums can actually reduce over time. Also, there may come a time when the interest produced can cover all your future premiums, and as a result you may have no more premiums to pay on your policy.
However, it's important to understand that it is possible the cash-in-value of a whole of life policy may actually be less than the amount put into the policy over it's full term.
Summary:
Buying a term life policy, or whole of life insurance is an important decision and one that needs to be made carefully. Before you take the plunge, you need to examine your needs, and exactly what you wish to achieve.
The simplest form is a level term policy with a renewable option. This will allow you to get life insurance for as long as you may need it.
On the other hand, a whole of life policy might suit you better if you need a policy that grows in value over the years.
Both types have their advantages and disadvantages, and careful consideration and advice from a competent insurance adviser is vitally important.
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