Whole Life Vs Term Life Insurance: Deciding Which Type Of Life Insurance To Buy

Written By: Eddie Lamb on January 23, 2010 No Comment

The two main forms of life insurance are whole life and term life. If you are in the market for a life insurance policy, you should make sure you understand the difference between the two before you buy anything, so let’s talk about the difference between whole life vs term life insurance.

The main difference between the two different types of life insurance is that a term life insurance policy is just life insurance. It does not build up a cash value like a whole life policy does. If you die, your beneficiary gets the money; if you don’t, well at least you were covered by the policy in case something had happened to you.

A whole life policy is another matter. You see, if you keep paying the monthly premiums on a whole life policy, after awhile you will be able to cash it out if you choose to do so. You usually have to own the policy for a certain amount of time before it accumulates any cash value. After that, the policy continues to increase in value over time. It could amass a value of thousands of dollars before you reach retirement age, depending on when you start the policy.

It’s easy to be led to think that a whole life policy must be a better deal because you are getting something extra. However, that is not necessarily the case. It’s true that the term life doesn’t have a cash value, but the premiums are usually much lower as well.

When you are comparing a term life policy to a whole life policy, you have to take more than the price into consideration. Of course a whole life policy will be more expensive than a term life policy. But what more are you receiving in exchange? The salesman would have you believe the cash value provides extra value, but you don’t really get both the cash value and the insurance.

You see, even though the insurance salesman makes it sound like you are buying something extra by getting a whole life policy with a cash value, that is just not the case. The way whole life works is this: if you die while insured, your beneficiary gets the insurance but not the cash value. If you cash it out, you get the cash value but not the insurance. So what were you paying extra for?

If you buy a term life insurance policy instead, you can take the amount of money you are saving on the insurance and invest it into a mutual fund. That way, you really do have both an investment and an insurance policy. The insurance will cover you if you die, and chances are the mutual fund will be worth more than the cash value of the whole insurance policy if you don’t. Plus, if you die while you are still insured, your beneficiary will get both the life insurance and the mutual fund.

Before you purchase any insurance policy, you should do the math yourself and determine which type of life insurance policy is best. Don’t just take my word for it, or the salesman’s either. If you evaluate both policies carefully, you will probably find that the term life insurance provides the best possible value for the money.

Life insurance can be confusing, especially if you don’t know the difference between insurance types on the market. The types you’ll encounter most frequently are term and whole life, let’s compare whole life vs term life insurance, to ensure you get the most competitive term life insurance .