What is the difference between whole and term life insurance?

Question

Which one is better to provide for your families needs if something happed to you?

Answer 1

whole = your whole life, term = period of time, 10,20,30, years both are good for your family!

Answer 2

Cash value life insurance vs Term insurance



What is life insurance? Life insurance is an insurance contract that pays your beneficiary (which are usually family members) a sum of money upon your death. Main reason why people purchase life insurance is to protect the family from financial loss, otherwise known as "income protection." There are currently two types of life insurance out there available to the public. One is known as "cash value" life insurance and the other is known as "term insurance." If you have life insurance right now, it is important that you read your policy. The information given in this blog comes from my life insurance text books and from experience of reading many of my client's life insurance policies.

What is cash value life insurance? It is a term policy to age 100 that contains a savings vehicle in it. Cash value comes in many forms, such as whole life, universal life, variable life, or a mixture of those words together such as variable universal life or universal whole life, etc. The advantages of having cash value life insurance is that you are protected until age 100, you can use the cash value anytime for any use such as paying your premiums, and interest on your cash value is tax-deferred.

The disadvantages of having cash value life insurance is that you are paying lots of premiums for low amount of coverage, no cash value is accumulated during first two years of the policy, rate of return is very low, and if you use any of the cash value, you will owe monthly interest on it. This interest does not go back into the cash value, but rather kept by the insurance company because the money you taken out of the cash value is treated as a loan. In many policies, if you were to die, your beneficiary will receive the face amount and all cash value will be kept by the insurance company. Keep in mind, if you use any of the cash value and you did not pay it back, this amount will be deducted from face amount upon your death.

Another disadvantage of cash value life insurance is that they are riddle with insurance fees. The most noticeable fee is the surrender charge. This is clearly stated in the policy of how much cash value you will get if you surrender the policy. Then there are fees you don't see such as administrative fees, policy fees, maintenance fees, and all these other operating fees. If your cash value life insurance is a variable policy, that means your cash value is invested in the stock market. Investments too have their own operating fees. If you combine investments and life insurance together, now you have so many different fees that eats away the returns on your investments.

You are probably asking, why would anyone buy this kind of life insurance? First reason is that many people do not understand how this policy works. Second reason is that people don't buy life insurance, they are sold on it. The agent who sells cash value life insurance does not care about you or your family. All he/she cares about is how much commissions he/she is getting paid and they going to use whatever deceptive sales tactic to make you buy it.

So, what is term insurance? It is the type of insurance that provides a level death benefit for life. Just like car insurance, if you don't pay your premiums, you will lose coverage. Advantages of having term insurance are: premiums are very low during the term, you have more flexibility to invest your money in a savings vehicle (hence the phrase, "buy term and invest the difference"), and if you were to die during the term, your beneficiary will get the face amount and all your investments. Another advantage is that you can change the amount of coverage without affecting your savings and vice versa. (In cash value life policies, you are stuck with paying into both.)

The disadvantage of term that while premium remain fix for certain amount of period (10, 15, 20, 25, 30, or 35 years), the premium will go up when it is time to renew. Majority of term policies provide renewable term coverage up to age 100. But there are some term policies that stop coverage after the level term expires because the insurance company wants you to convert it to whole life or universal life.

Why would people buy term insurance? First, premiums are very low and remain fix during the term. In the early stages of your adult life, you probably have lots of debt to pay off such as your mortgage, you probably have kids to support, and you probably don't have much money saved for retirement. So you need lots of insurance coverage to protect the family. As you get older, your kids are all grown up, your mortgage is or almost paid off, and you better have lots of money saved for retirement. As you get older, you probably won't need life insurance or need as much coverage as you did 20 to 30 years ago.

What happens when the level term expires? When the level term expires, you enter the phase of the contract called "Annual Renewable Term." That means you have the right to renew the term without having to provide proof of insurability. The premiums will go up every year or so (check the policy on how often the premiums goes up after the level term). Depending on your policy, you are usually given several options when the level term expires.

(1) You may convert it to a permanent whole life policy (which I don't recommend).

(2) You may exchange it to another level term (I recommend that you significantly lower your coverage amount to a minimum of $20,000). You may need to provide proof of insurability.

(3) You may refuse to pay the premiums to cancel the policy (if you do this, I highly recommend that you allocate the money toward your retirement).

(4) You can change the death benefit to the amount you really need. In most cases, the amount of coverage you need is usually lower than what you needed years ago. In fact, you probably won't need life insurance as long as you enough money saved.

If you have cash value life insurance right now and are probably pissed off about having it, you should figure out what you want to do. Do you want to cancel it or should you replace it with term? It all depends on your current needs. If you have a problem with or questions about your life insurance policy, don't call the agent to get your answers because an agent's job is to sell life insurance, so they won't say the bad things about your life policy. Call the company's phone number that is listed in your life policy (which is usually on the cover page).

If you are going to replace it with term, don't cancel your current life policy yet. First, you want to see if you qualify for term insurance, which you probably will if your health is not that bad. When you get your term policy, then you want to cancel your old life policy. There's a couple things you can do with your cash value. First thing you can do is that you can surrender it. You may have to pay surrender charges on it and you will owe income taxes on it, but at least you have choices on where you want to put this money. The second thing you can do (and is probably the best way to do it) is do a 1035 exchange, which moves the cash value into an annuity product or another cash value life insurance without any tax implications.

I have always sold term insurance and help clients invest their money 100% of the time. That way they are protecting the family's income for a low cost and at the same, building wealth for the future. It does not make any sense to bundle life insurance and savings together. Life insurance's main purpose is to protect your family's income in the event of your death, not as a way to build tax-deferred savings. Since term insurance is so inexpensive, I show clients on how to effectively build wealth. One way is to open an IRA, either Traditional or Roth. Money in an IRA grows tax-deferred. If they max out their contributions to an IRA, then they should put more money toward their 401(k) or 403(b) or whatever retirement plan they have at work. If they don't have an employer's retirement plan, then a variable annuity would be the next choice, not a cash value life policy.

If you are going to meet with your agent to go over your life policy, you want to record everything he says. That way you can review it with your attorney or send it to your state's insurance department to find out if he is telling the truth. If he is lying, you can take lots of legal action against him and his company.

Other facts:

What is a dividend in an insurance policy? It means that you are over paying your premiums and the life insurance is returning (or refunding) it as a dividend. Keep in mind, this is not the same as receiving dividends on mutual funds. Dividends in mutual funds are only paid out if profits are recognized that year, so shareholders will get a share of that dividend.

Getting separate insurance policies will cost you lots of money in the long run. Each policy cost about $100 to maintain each year. If you have multiple policies on yourself, you should immediately change your life insurance agent and probably the company as well. There is no reason why you should have more than one policy on yourself. It is best to add "riders" to the policy such as spouse rider and child rider. That way the whole family is protected under one policy.

Some of you seen the word, "unit" on TV commercials. A unit represents one-$1000 worth of coverage. I seen commercials for retire people where one unit cost $8.75/month. In your mind, you are thinking thats very cheap. If you do the math, you will find out that's very expensive! If you wanted $100,000 coverage, thats 100 units. 100 time 8.75 = $875.00/month you need to pay for life insurance. I have a 20 year term of $150,000 coverage when I was 23 years old and I pay less than $300/year for it.

All life

Answer 3

When you die, they would be equally valuable, assuming they are both in force and the death benefit is the same.  It really comes down to the money you pay and the duration of your coverage.

The longer you want a risk covered, the more expensive it generally is (especially if the likelihood of that risk occurring increases over time).  To some people, it is worth covering risks like this for the rest of their life.  For most people, the opportunity cost is too high.

Answer 4

maturity after death or 100 years,80 years(in some company)completed one can get maturity or death claim to nominee is whole plan

and only happening of death one can get claim by nominee otherwise no payment will made if client will live.

and both is advisable 1) in younger age one should take term

and below 35 to 40 age one should take whole...

please rate me if you got some idea.

Answer 5

Whole life insurance is much more expensive, but is in effect until you die. It also builds cash value over time that you can take loans against. Don't count on that however, because you will have to pay the money back or it is deducted from the death benefit upon death.

Term insurance is effectrive for a specified term (example: 10, 15, 20 or 30 years). It is much more affordable, and you can get a much larger face amount (death benefit). It does NOT build cash value. If you do not die before the term has run out, you are left with nothing.

Some companies have a policy calle term insurance with return of premium. It is a term policy with a higher cost than regular term, but less than whole life. At the end of the term they return the premium. The company makes money because they have been investing and collecting gains on your money while you have had protection. Its a good policy.

Term is typically the better way to go earlier in life because you can afford more (pay less) while you accumulate and build other investments. At the point that the term expires (or before) you can always add the whole life. A good way to do this is to get a smaller whole life policy with a term rider. Basically it is two policies built into one. You get the whole life, and then the term policy built in. The term is the same as above, it also expires at some point. If you have invested wisely, there are ways to avoid needing life insurance if you have built up enough money and placed it in the proper places to minimize taxation.

Answer 6

Whole life has a cash value that will be attributed to it and once you reach a set dollar amount you will not have to continue to pay.

Term life is cheaper per month however you will pay every month and there is no cash value to the policy.

Both provide for your family if something should happen to you.

Answer 7

Both whole life and term life insurance are designed to protect a family against the financial burdens that accompany the premature death of a breadwinner. You pay a monthly or yearly premium with each. A term life policy will pay a death benefit in the event that you die during the specific time, or term, covered by the policy. That term could be 10 years, 20 years, or 30 years. A term life policy has a start date and an end date. If you die the day after the policy ends, the insurance company does not pay a death benefit. The premiums that you pay for a term life policy will be gone when the term is up. Since very few people die during the term, the insurance companies do not pay may death benefits, so the cost of insurance is low.

A whole life policy covers your for your entire life. If you die the day after you take out the policy, you are covered. If you die in 20 years, you’re covered. And if you die when you’re 80, you’re covered. In the mean time, the insurance company invests the money you pay in premiums, and some of the earnings are put into your policy in the form of cash value. The cash value builds over the years. At some point—when you are on a fixed income, for example—you can use your cash value to pay the premiums, keeping your policy in force. Because the insurance company is certain to pay a death benefit on each whole life policy, the costs are higher and the insurance premiums are higher. Good luck!

Answer 8

THe difference has been stated above.  Assuming you are in the same class as about 95-98% of the American people, term insurance is the better choice.

Answer 9

whole life insurance

Definition

Life insurance policy that (1) normally covers an individual until his or her death, unless it lapses due to non-payment of premium or is cancelled, (2) builds up a cash value (called cash surrender value), (3) pays a fixed death benefit, and (4) where (unlike in a term life insurance) the premium amount remains constant despite the advancing age of the insured. The insured or policyholder may obtain a loan (called policy loan) against the accumulated cash value. Also called continuous premium whole life insurance, ordinary life insurance, permanent life insurance, or straight life insurance.

term life insurance

Definition

Simplest and usually the cheapest type of life insurance that stays in effect for a specified period or until a certain age of the insured. It pays the face amount of the policy in case the insured dies within the coverage period (term) but pays nothing if he or she outlives it. Also, (unlike in whole life insurance) whereas it premium cost is low in younger years, it generally increases rapidly with the age of the insured. Term life insurance is used commonly as an insurance cover for a loan repayment or post-death liabilities such as estate taxes.

Answer 10

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