What the differents in term life& whole life insurance?

Question

What the differents in term life& whole life insurance?

Answer 1

I agree whole life is best you can also use this policy if you need a loan from the bank or you can even take some money out from the cash value account. Its a great thing to have.

Answer 2

Term is covering you in case of death for that specific time and amount while whole can also accumulate a percentage of the monies you pay in to come back to you. At this day and age-its not really worth it in most agents opinions. Each site will explain it for you-check life insurance brokers and sites.

Answer 3

Go to Yahoo Finance, click on "Personal Finance" and read the life insurance section.

Answer 4

Term life insurance is only good for the amount of time that it is offered (term), like when you reach 70, it will expire. Then you are no longer covered.

Whole life is in effect until the day you die, regardless of how old you live to be.

Answer 5

Term insurance is available for set periods of time such as 10, 15, 20, or 30 years. It pays a death benefit during the  specific period of time. At the end of the term period, there is no insurance in force unless you renew the insurance for another term period. You can renew term insurance policies for another term period even if your health has changed. The premium rates increase at each renewal date.

There is also annual renewable term life, where your policy automatically renews each year and premiums increase as you get older. Choose level term insurance if you want your premium to stay the same for the duration of the policy.

Also available is decreasing term insurance, where premiums remain level but your death benefit declines over time. This is good if you want to cover only a specific debt that decreases, such as a mortgage or business loan.

As long as you pay your premiums, the company cannot cancel you. Term insurance generally offers more insurance protection for your premium dollars; however, as stated, premiums increase at the end of the term period. It is good protection for needs that will disappear in time, such as mortgages or car loans.

Term life insurance is a popular choice because of the long rate-guarantee periods and because premiums are at all-time lows. However, if you get to the end of your policy term and still need life insurance, you'll need to shop for a new policy, which will then be priced based on your older age and health status.

Choosing an initial rate-guarantee period is easy: Match the period of time your dependents need your income to the available rate-guarantee periods. For example, if your children are young and you have decades to go on your mortgage, try 30-year term life. If your children are leaving the nest and your home is paid off or nearly paid off, 10-year term would fit the bill.

Other policy provisions that drive the popularity of term life insurance are guaranteed renewal and guaranteed convertibility. Before you buy a term life policy, ask the agent or company to confirm to you that the policy contains a guaranteed renewable option, which grants you the right to continue coverage beyond the initial rate-guarantee period without a medical exam. This feature, found in most term life policies sold today, is extremely important should you become sick and uninsurable toward the end of your rate-guarantee period. For example, say that you’ve been paying $800 per year on a $500,000, 20-year level term life policy and develop cancer near the end of the 20-year period, thus making you uninsurable. Assuming that you want to continue the coverage, a guaranteed renewable clause would allow you to continue the coverage beyond 20 years on an annual renewable basis without an exam, although at a much higher annual premium of, say, $8,000 in year 21, $11,000 in year 22, and so on. These premiums don’t look so high when you are very sick and uninsurable but still in need of coverage.

Another built-in feature of most term life policies is the right to convert your coverage to any whole life or cash value policy that the company might offer at current rates without having to take another physical exam. This feature may be of use in the future if you decide you want cash value life insurance.

If you'd like term insurance to cover you for a certain period of time but you're confident you'll outlive the policy, consider a return of premium (ROP) term life insurance policy. Under this type of policy, if no death benefit has been paid by the end of your insurance term, you receive all your premiums back tax-free. Return of premium term life insurance generally costs 50 to 150 percent more than a comparable term policy but it provides a way to hedge your bets no matter what happens.

Whole Life insurance, also referred to as cash value insurance, provides protection for life. As long as you pay the premiums, the death benefit will be paid. Premiums are  higher than term insurance; however, part of the premium is invested by the company and builds up a cash value. This cash value will accumulate and may be available if you surrender the policy; or, if you stop paying premiums, you can use the cash value to continue your policy at the current death benefit for a specified time or at a lesser death benefit covering you for your lifetime. Part of the cash value may also be used as collateral for a loan, or you may borrow from the cash value of the policy.



If you want more than a death benefit from your life insurance policy and like the idea of a long-term savings account (not insured by any federal agency) or stock market investment, you might consider whole life, universal life or variable life. Be prepared to pay much higher premiums per $1,000 of coverage because you are now funding a cash value account and paying fees and expenses.

In many cash value policies, the annual premium does not increase from year to year. Universal life policies allow you to fluctuate or even skip premium payments, which in turn adjusts your death benefit amounts.

Unlike term life insurance, which is easily compared online, cash value insurance is often marketed by agents and brokers in a face-to-face setting, where needs and strategies can be discussed.

Because of the complexity and dizzying array of possible outcomes for permanent life insurance, regulators insist that cash value insurance be sold using pre-approved illustration formats. These illustrations can run to 15 or more pages. Cash value life insurance illustrations are divided into two major sections: guaranteed values and projected or “illustrated, non-guaranteed” amounts. Illustrations can be complex and hard to compare in an apples-to-apples way.

Pay particular attention to the guaranteed death benefit and premium-payment sections because these columns contain the actual company promises. If you don’t like what you see there, walk away.

Many cash value policies contain harsh penalties for surrendering the policies in the early years. Changing your mind within the first few years is an expensive decision.

Answer 6

Term life insurance is a specified amount of coverage for a specified period of time, i.e. 10 Year Term will cover you for ten years with no increase in premium for that period of time. If you renew the policy beginning the 11th year, the premium will be higher. Term policies usually do not accumulate cash value.

There is also decreasing term for a specified period of time. It starts out at one amount, then decreases annually for the specified period of time. The premium will stay the same, but the policy will cancel when the specified period of time is up.

Whole life insurance, on the other hand, is a permanent policy, which may or may not accumulate dividends (depending on company or policy), and accumulates cash values. The guaranteed cash accumulation, along with reduced paid up value, and extended term are considered non-forfeiture vales. These values are there for your option if you decide to cancel the policy in later years. The whole life policy endows (pays off to the insured) at the policy anniversary after the attained age of 100. The dividends, if any, can be used to pay premiums, cash to the insured, or to purchase paid-up additions to the policy.

A good combination of protection would be a whole life policy

with a larger term rider, or seperate policy. Later on in life, when the term is no longer needed, the whole life is still there, with an option of reduced paid-up, or extended term, which can be used for final expenses.

Universal Life is basically a term policy with an annuity rider. As you pay premiums, part of the premiums go into a side fund. Out of this side fund comes the cost of the term, which is basically annual renewable, and administrative fees. The fund accumulates at current interest rates, with a minimum guarantee. As the fund accumulates, and if you need to borrow from the policy, there may not be enough cash in the fund to keep the policy in force. You might have to increase premiums to keep the policy inforce. Also, in later years, if you didn't pay enough premiums to accumulate enough money in the side fund to pay that higher insurance cost,

you may have to pay higher premiums to keep the policy inforce. If you don't, the policy will lapse.

Only 3-4% of term is paid out in death claims. While you are raising a family, have a mortgage, etc., term is fine. But term will expire one day, or get too expensive to keep. This is why I recommend a whole life policy in the plan. Later you can quit paying premiums, and still have insurance.

Answer 7

Term insurance, your premium is locked in for a "term", usually 1, 3, 5, 10, 20 years.  

Whole life, the premium is locked in for your whole life, until you hit 95 or so. Also, whole life generally has a "savings" plan to it, from your overpayments on the insurance part.   Whole life costs about 10X as much as term.

When trying to pick one, figure out what you want it to do, and look at alternatives to insurance.  If you choose term, be sure it's renewable and convertable without an exam.  

Most of the time, term insurance will do what you need it to do, at a fraction of the cost of whole.  By "investing the difference", you eventually build up your assets to the point where you don't NEED the insurance (in most cases, but not all).  

Sometimes, the whole life IS the product you need.  Not often, but it does happen.

That's why it's important to DEFINE THE GOAL before you pick one.

Answer 8

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.