Term Vs. Whole Life Insurance Policies
Nothing lasts forever, but thanks to life insurance policies, you can make sure your loved ones receive monetary benefits after you die. Life insurance can be confusing, but it's important to know the two basic types: term life and whole life insurance. They're quite different, and they each have their pros and cons.
Other People Are Reading
-
Term Life Insurance
-
Term life is basic life insurance. You pay premiums every year, and if you die while you're paying the premiums, your beneficiaries will receive the policy amount. You can choose how long you want to pay. Some policies have fixed premium amounts and others have premiums that increase or decrease as time passes. However, once you stop paying the premium, the benefit is gone. If you die after you've stopped the policy, your beneficiaries get nothing.
Whole Life Insurance
-
Another name for whole life insurance is permanent life insurance. A whole life policy covers you for life and has a cash value. This is because your premiums not only pay for insurance, but also pay money into an investment account. The premiums are higher than those of a term policy because of the investment account, which earns interest and grows as you pay your premiums. During your life, you can borrow from the savings account or cash it in entirely. When you die, your beneficiaries receive the policy amount and the savings account funds, sometimes tax-free.
-
Pros and Cons of Term Life Insurance
-
Term life insurance is less expensive early on; the younger you are, the lower your premiums. You don't pay any extra for an investment savings account, and your beneficiaries receive the full policy amount when you die. The commissions and fees are lower or nonexistent. However, term policies can be very expensive for people over the age of 50, and if you stop paying on it or the term ends before you die, you've spent all that money and have nothing to show for it.
Pros and Cons of Whole Life Policies
-
Whole life policies are investments, and you can accumulate a decent savings account if you have the policy for several years. Your premiums will usually stay the same during the entire life of the policy, and you can buy a whole life policy even if you're too old to buy a term policy. There's no end to the policy, so if you stop paying premiums and you die, your beneficiaries will at least receive the amount in the savings account. However, whole life policies are expensive, and often come with larger commissions and hidden fees. It can take decades to save up a meaningful amount in the investment account, and the insurance company might charge you fees if you borrow from the account or cash it in.
-
