subject: Whole Versus Term Life Insurance [print this page] Whole Versus Term Life Insurance
Anyone who has never had to face the whole versus term life insurance controversy, at least in their own minds, may be committing one of their biggest mistakes ever. The wrong insurance policy can wreck your financial plans more than anything else because you are paying a sizeable amount as premiums. Therefore, the first decision you need to make is this: whole or term life insurance? Whole life insurance A whole life insurance policy is one which provides coverage throughout the life of the insurer. This insurance policy requires that premiums be paid every year. One of the most attractive features of the whole life insurance policy is the cash value that it accrues over time. This money is paid by the insurance company and is a return on the premium that you pay. Unless you withdraw this money or borrow against it, this cash is tax deferred. Term life insurance This insurance remains in force only for a defined term. The policy is inexpensive no doubt. But, if the policy lapses, the insurer will be left with zero coverage, in case of an emergency. Benefits of whole life insurance policies: A small portion of the money you pay as premium goes towards the cash value. This cash value will build upon itself and you may very well be able to pay off the entire policy in a few years using this. Another benefit is that unlike term insurance policies, your premium amounts for whole life insurance policies remain constant throughout your life, unless you opt for a change. Besides, whole life coverage has benefits, both in terms of the health of the insurer as well as tax savings. Whole life insurance as an investment: Viewed purely as an investment, whole life insurance is rather unattractive because it offers low rates of return when compared to other investments. Life insurance policies must be purchased for the coverage they provide and not as an investment tool. Of course, if you hold the insurance policy for a long enough period, you can get a good deal out of the investment. However, this depends on a number of factors like your age, health, the insurance company, dividend rates, interest and so on. So, what is the confusion? Whole life insurance policies are a whole lot more expensive than simple term insurance policies. And this is the crux of the debate. Should you pay more money and buy whole life insurance or pay low premiums and buy term life insurance? It must be remembered that whole life insurance has certain unique features that make it a wonderful option for people to protect their loved ones and their investment. Besides, some amount of the premium you pay goes towards building the cash value of the policy. The longer you hold the policy, the higher will be the cash value. So, even though your initial premium on whole life insurance will be much higher than the premium on a term insurance policy, you will find that over the years, there are several benefits accumulating from the whole life insurance.
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