Understanding Term Life Insurance Vs Whole Life Insurance

Written By: Eddie Lamb on January 23, 2010 One Comment

Whole life insurance is also known as cash value and universal life. It is the original kind of life insurance and has been around for about a hundred years. Term, which is much less expensive and more affordable, is a fairly recent innovation. Here are the basic differences between term life insurance vs whole life insurance.

The cheaper insurance is term. It’s so much cheaper because you are only buying the insurance. You aren’t paying high premiums that the insurance company is going to invest for you. You are also only paying for a period of time, or the term, and the insurance company is betting – in the truest sense of the word – that you won’t die during the term of the policy.

With whole life, because you are paying for and are covered for your whole life, they know they will absolutely need to pay the death benefit sooner or later, as long as the policy stays in effect.

If you want nothing more than insurance, and that should be everyone’s goal, you only need a term life policy. Let’s say you just got married and you want to get a policy for you and your wife. At the age of 28 you two can get a 20 year term policy with maybe $250,000 coverage for each of you, for less than $100 a month. If you have children, you can add them all on a rider for a few dollars a month. This is one rider per policy, not per child! If you have a rider on your children for $10,000, you can have 7 kids and still be covered.

Now, let’s say you want to check out whole life policies. For $250,000 coverage for each of you, you’ll first need to buy two separate policies, doubling your expense. Your premiums each month will be at least $500 for both policies. If you have kids, again, a separate policy for each one.

In reality, insurance should be nothing more than making certain your family has enough income to replace yours if something happens. Insurance should not be mixed with your investments.

It’s never a good idea to mix insurance and investments or savings. With a whole life policy, when you die, all that the insurance company pays out is your death benefit! They keep the investments and cash for themselves. So, if your family thinks they will be well provided for because they are depending on your investment portfolio, there isn’t one!

The only person who benefits from your whole life policy is the insurance agent who makes incredibly high commissions each month because you are overpaying for the policy.

You can use the term life insurance calculator to locate the best level of insurance now! When comparing term life insurance vs whole life insurance, a person will be able to see the benefits and advantages of each type of insurance instantly!