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How to choose between term life and whole life insurance policies?

How to choose between term life and whole life insurance policies?

While taking a life insurance plan to cover your death benefits

, you will certainly get a number of options from your insurance agent. But how do you select the optimum one? What are the feasible options as your budget and future planning is concerned?

Know your insurance options:

Let me tell you, it is never an easy task to deal with such risk-return trade off. First, you need to decide your financial goal. The death benefit plan can have two options for you to select. Either, you expect good return on your investments (the annual premiums) or just accept it as financial protection tool. For the first one, premium amount would be higher than the second one.

Simply put, the first insurance plan has dual benefit i.e. Return on Investment plus death benefit, which is called as Whole life insurance. Here a part of your premium goes to the investment fund like shares, mutual fund, stocks etc for funding.How to choose between term life and whole life insurance policies?

In the second plan, the policy pays the monetary benefits to your beneficiaries upon your death which is named as Term life insurance. This is the most inexpensive insurance scheme as far as premium amount is concerned. You can get a number of insurance advisors to avail cheap term life insurance.

Now both the options may look lucrative if you know which one to use, when and how. It all depends on your income stability, saving pattern, insurance need and risk tolerance ability.

For example, if a 30 year old healthy man registers a policy with a death benefit of $30, 0000 he can apply for both the options: Whole life and Term life. In case of Whole life insurance policy the annual premium would be $3000, whereas to gain the same death benefit, Term life insurance would cost him only $300 per year.

Here is a point to be noted that in case of Whole life policy, the premium would remain same through out the life, whereas it will increase in Term life as you grow older. So, at the age of 70 years you may end up paying $ 12,000 per year as opposed to $ 300 which you started with.

Another advantage of the Whole life policy is that you can utilize the accrued money on demand. You can also borrow it from your investment funds anytime you wish.

Since both the options are viable, you have to judicially choose the apt one for your family. Initially you may start with term insurance for the basic securities, then think of pouring additional funds to get a whole life policy, where you can choose your investment option. For term life, you will have different options like annual, 7-year and 10-year policies. In annual term policies, premium would be higher. So it is advisable to ask Term life insurance quotes for at least 7 or 10 years.

How to choose between term life and whole life insurance policies?

By: Jeson Ross
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How to choose between term life and whole life insurance policies? Saidu Sharif