If you are considering purchasing life insurance, an overview of
the available types should prove helpful. This article will
briefly discuss the difference between whole and term life
insurance, as well as some variations on whole life insurance.
The easiest way to understand the difference between whole life
insurance and term life insurance is to look at what is meant by
their names. When you purchase whole life insurance, you are
covering your "whole" life - as long as you own the policy, it
will pay a benefit when you die. What that benefit is depends on
the value of the policy at the time of your death, but you own
the policy even if you are no longer making payments on it.
Whole life also accumulates a cash value on a tax-deferred
basis. In addition, whole life can pay dividends throughout the
life of the policy.
Term life insurance, on the other hand, is purchased for a
certain term, or period. As long as you die within that period,
term life insurance will pay an agreed upon amount to your
beneficiaries. It will not pay if you cease to make payments or
if you die after the term has expired. In addition, term life
insurance has no cash value.
Two other aspects of whole versus term life insurance should be
pointed out. The first aspect is that premiums for whole life
insurance are higher to begin with, but remain steady over time.
On the other hand, premiums for term life insurance are lower
near the beginning of the policy, but increase over time.
Another aspect is that you can borrow against the cash value of
a whole life insurance policy. This is not possible with term
life insurance, since it does not have a cash value. There are
two variations of whole life insurance that need to be
mentioned. The first is a more flexible form of whole life
called universal life insurance. With universal life insurance,
you can adjust (within certain limits) the premiums as well as
the benefit amount over time to suit your financial situation.
This is made possible by placing the premiums in a fund that
accumulates based on the interest rate. As with normal whole
life insurance, this type of policy has a cash value that can be
borrowed against.
The second variation on whole life insurance is called variable
life insurance. This type is similar to universal life
insurance, except that the premiums in the fund are tied to the
financial markets rather than to interest rates. While the
potential for growth is greater with this type of insurance, the
potential for loss is greater as well.
As you can see, there are some choices to be made when
considering the purchase of a life insurance policy. Now would
be a good time to use some of the other resources at this site
to help you decide on the life insurance policy that is right
for you and your family.
About the author:
Mike Bell is the webmaster of
http://www.InsuranceOptionsGuide.com, a resource for life and
health insurance answers.
