What is the different between whole life and term insurance?

Question

What is the different between whole life and term insurance?

Answer 1

whole life is a policy that matures whith time, a portion of your payments go into a Savings that you can borrow against, and eventually, if you live long enough, you can cash in your life insurance. (remember on monopoly the chance card that gave you $200 for your life insurance maturing?) term life is only applicable for a specified length of time and does not appreciate, but the rates are much lower and more dependent on your lifestyle choices. (higher risk, higher premium) same as whole life.

Answer 2

Term life is pure insurance. You get what you pay for. Whole life is insurance plus a savings plan. Insurance sellers like whole life because they earn much higher commissions. However, it is easy to show that over the life of the policy, term life is always the best choice.

Term life gets more expensive over time in some cases because as you get older your life expectancy decreases and the probability of your dying increases. this is also built into whole life policies, but is not stated anywhere. However, as you age, your assets also increase so you need less insurance. That's why reducing term insurance can be a good choice.

Whole life insurance accumulates a cash value, after a good dear of the early cash value accumulation is paid as commissions. Generally, although the savings part of insurance is not taxed, the return is typically lower than you can earn by investing the money yourself. Insurance sellers are quick to point out in glowing terms the benefits of whole life, but they don't tell you the negative aspects. People often wind up buying less insurance they need because the whole life policies cost more. spending the same amount on term premiums buys a lot more insurance.

Answer 3

never buy whole life insurance.  it's essentially a savings account--you can get a better rate of return in a money market account.  if you buy term life, you are buying a specific policy for a certian amount of time.  ex: 20 yr term life of $100,000.--you make monthly payments and if you die within that 20 yr term, your benificiary gets $100,000.  if you're using whole life---you buy the policy, you die next year--your benificiary only gets however much $$ you have paid in.  so it makes more sense to either have term life or just be self insured (which just means you have enough money to leave your benificiary to take care of themselves)

Answer 4

Go to Yahoo Finance and click the "Personal Finance" tab.  There is an explanation there.

Answer 5

Basically - you are RENTING term life insurance, while you are BUYING whole life insurance.

Term life insurance will increase in cost over the years while whole life premiums will remain the same for as long as you keep the policy.

You can normally buy MORE term life insurance for the same amount of money but if you kept BOTH products for the same amount of time, the term product would end up costing you more.

Good luck and I hope this helps!

Answer 6

All life insurance pays a death benefit when the policyholder dies. The death benefit is intended to replace the lost income of the deceased, allowing the survivors to maintain the lifestyle they enjoyed before the love one’s passing—at least for a period of time. Both term life and whole life accomplish this goal.

The major difference between whole life and term life is the amount of time the policy covers. As the name suggests, whole life covers the policyholder’s entire life, until death. A term policy insures the life only for a certain number of years, known as the term. When the term is up, the coverage ends. If the policyholder wishes to continue term life coverage, he or she must take out a new policy. This is an important juncture. If the term life policyholder has developed a serious illness, such as AIDS or cancer, insurance companies may not be willing to insure the life—or the premiums will be so high that the insurance will be out of reach. With whole life, coverage continues no matter what health problems the policyholder develops.

Since term life policies often expire without the insurer needing to pay a death benefit, the cost of term life insurance is much lower than the cost of whole life. In fact, term life insurance costs several times less than whole life insurance does. Affordability is term life’s main advantage. If a person has just started a family, he or she can take out a 20- or 30-year term life policy, knowing the family will be provided for should anything happen to the policyholder. After that, the term lifers argue, life insurance is no longer critical. With children grown, the mortgage paid off, and retirement in the offing, the policyholder can afford to allow the term policy to end without taking out another. The term life policy will have served its purpose.

Whole life and universal life advocates are not so optimistic. What happens if the surviving spouse becomes disabled? Even after the children grow up, a disabled person will not be able to support himself or herself if the breadwinner dies. If the term life insurance has expired, the disabled spouse will have no safety net in the event of the death of his or her spouse. Similarly, a child may become disabled and unable to move out and support himself or herself like other children. With a disabled adult child living at home, the surviving spouse might not be able to meet all the expenses on his or her own.

It is possible for an older person to buy a new term policy, of course. The problem is that insurability is not guaranteed. If a person is overweight, in  poor health, or has had a serious illness, such as cancer, insurance companies can and will deny coverage. Even in ideal health, or if the person has a renewable term life policy that does not require a physical exam, a person will pay much more for term life over the age of 50 than he or she would have earlier, erasing some or all of the savings realized during the term of the first policy. For example, a 55-year-old woman will pay 6.8 times more for a 30-year, $500,000 policy than she would have at age 30--$2,210 a year compared to just $325 a year. Permanent life insurance—such as whole life or universal life—will not expire and the payments will not go up based on the health, weight, or age of the insured. Permanent life insurance costs more initially, but it is a practical solution for consumers who worry about coverage and insurability later in life.

Answer 7

Term insurance is issued, generally with an initial lower premium but the premium can increase as age increases.  There are no cash values associated with term insurance and therefore, the costs to the insurance company to manage the funds required to pay the death benefit in the future are lower.  Term insurance can be level term which means that the premium will be the same for a specific number of years and the amount of the insurance benefit will remain the same for that time.  It can be decreasing term insurance which is the type of insurance generally used to insure mortgages.  It is characterized by a decreasing death benefit but the premium stays the same.  

Whole life insurance is insurance featuring a specific amount of death benefit with a level premium (it stays the same throughout the life of the insurance) and as the policy ages (each year it is renewed by payment of the premium, it starts to build cash values that can be borrowed against or even cashed out by surrendering the policy.  

There are various forms of these policies, one of which is called a universal life policy.  It is based on a principal of "buying term insurance and investing the difference".  The insurance company does the investing and you pay the premium.  You pay the premiums and the policy will build cash values that will be paid whether you live or die at a specific time or at a time when you might believe you could use the money more than the insurance.  The major problem with this policy is that you are not required to pay every premium -- it's flexible so that young families can avoid a premium or two and the policy will still stay in force.  The catch is that the term of insurance will decrease as the amount of money in the policy is not enough to cover the premiums over the years.

Personally, I believe life insurance is a great investment, especially if you want to ensure that your kids can go to college if you die or that your mortgage and bills will be paid off.  For people who have trouble saving money, it's a great way to build cash value in case of an emergency.  In a sense you can have your cake and eat it too.  If you live, you will have built cash values that you'll be able to withdraw in the future.  If you die even days after the policy was issued, your chosen beneficiary gets the face amount of the insurance.  For example, if you have a $100,000 policy, your beneficiary will get $100,000.  There are tax benefits to having life insurance and for the most part, the cash values that accumulate accumulate tax free.  The benefits paid upon death can avoid probate depending upon the beneficiary.  Also, the death benefits, up to a certain amount, avoid taxes.

Like everything else, the benefits and detriments should be weighed carefully.  But even the Bible references insurance.  Get insurance for your children when they are very young and the costs will be very low.  You can transfer ownership when they reach maturity and they'll be able to continue the coverage until they die.  If you are a parent who loses a child due to a car accident or even illness, having the policy will help pay final expenses and give you peace of mind.

What else do you want to know?