Term Vs Whole Life Insurance: What You Must Know
It is kind of a left-brain right-brain way that our mindset works when we first hear about term and whole life insurance. We readily find them in a versus manner: term vs whole life insurance. Being confused, we hang in the balance and keep worrying—whither way we should go?
Clearly the solution is to understand the versus points between term vs whole life insurance. With a view to clarifying the differences between term and whole life insurance policies, we have this discussion for you.
Reading this post will help you understand what happens in whole vs term life insurance.
Term Vs Whole Life Insurance: The Basic Difference
The basic difference between the rivals lies kind of in their names: term life insurance and whole life insurance. It may sound like a riddle that term life insurance is term life insurance because it works for a term. That is to say, it works for a specific time that you choose your life insurance policy to work for. For example, if you buy 25-year term policy, you will be under protection for those 25 years. If you die within the time, your dependents will get the documented amount of money from the insurer.
On the other hand, to put it in the riddle-some words again a whole life insurance policy is whole because it is designed to work for the whole duration of your life. In other words, the protection that comes with it stays with you till you die, beyond any specific years.
Besides the notional differences between them, other factors also decisively set the term life vs whole life insurance policies apart.
Term Vs Whole Insurance Policy: The Second X Factor
The way your payment works in them is the second largest factor that makes the policies as they appear: whole vs term insurance. The insurer uses your payment for term policy to build only the death benefit. If you happen to die within your policy’s term and the payment is up-to-date, the nominees get it.
On the other hand, besides building death benefit, your insurer utilizes your whole policy payment to generate living benefit, aka cash value. This is the share of a small-scale profit they make from investing part of your premiums.
Thus, the money matter makes the whole vs term life insurance wide apart.
Cost-difference in Term vs Whole Policies
Costs difference also puts the term vs whole life insurance in a versus manner. Term insurance rates are way cheaper than most people assume them to be. You can buy a huge sum of death benefit for tens of dollars.
If you go for the whole life policy for the same amount, you need to pay in hundreds. The price literally rises in multiplicity in the whole portfolio.
Term and Whole Life: Insured Vs. Uninsured
When your term life policy comes to an end, you need to renew it. Or, you come off insurance. On the other hand, your whole life’s insurance protection sustains all along.
Once again, you cannot continue your term life insurance after a certain age, meaning your protection cannot be permanent. But whole life will keep its protection umbrella over your head so long as you live.
Thus, term vs whole life insurance appear in versus forms for the way they provide protection to you.
End-Cost in Term and Whole Policies
Yet another bifurcating line between the term and whole life insurance is the end days cost you pay for each. Until the level period is over, your price for the term life policy does not go upward. But the moment this period is over, the cost keeps rising every year. This happens because you appear to be a vulnerable client for the insurer.
In a dissimilar way, your cost for the whole life insurance goes down toward the end days if you refrain from using your cash value money.
Money Refund in Term Vs Whole Life Insurance
Term vs whole life appear in versus way for the way they deal with your money when you want to come out of insurance. If you do not want to continue your term life insurance, your insurer will not refund you anything. But cancelling your whole life policy will bring you back your premiums.
However, as your insurer will slice off taxes and cancellation fees, your take will be less than your give.
Death Benefit in Term and Whole Life
The way the death benefit builds in the term vs whole life insurance marks them off greatly. The death benefit is the only purpose you buy your term policy for. As such, there is no complication to the process.
But the whole life’s cash value and death benefit often work in an inter-related way. The cash value channelizes itself to the death benefit or affects its delivery.
Term Vs. Whole Insurance: Warranty Vs. Guarantee
The assurance for the death benefit also make term vs whole insurance for you to see in a versus way. It kind of works like your gadget’s warranty vs. guarantee-ways, If applicable, you have the absolute guarantee of the death benefit from your term policy.
On the other hand, the basket of the whole life insurance lacks this absolute guarantee. As the cash value plays an active role in the death benefit, it may fluctuate and be lower than your expectation.
Term and Whole: Option Vs Obligation
While term life policy comes in the way option, whole life policy appears to be an obligation. You can choose the duration of your term life policy according as you wish. When you need insurance protection for one single year, you are free to buy it that way. In contrast, a whole life insurance policy obliges you to keep it in force till you die. So policy duration also makes the rivals go apart and we see them as term vs whole insurance.
Term and Whole and the Myth of Peace
Insurers, you will see, want to project life insurance product for a tool to ensure your mind’s peace. Of course, when you have a large sum life insurance, your anxieties go down. You know the most important people in your life will remain safe even if you pass away any time. But the rivals, term and whole life insurance policies, do not work the way for your peace. Term life is well advanced in this regard. Because its death benefit bears no hassle, it ensures the peace of your mind. But, because there are variables in a whole life policy’s death benefit, it lacks in ensuring the peace you want from your insurance.
Accessibility in Term Vs Whole Insurance
Marketing strategies also make a yawning difference between the term and whole life insurance policies. Internet has emerged as the most active marketplace for the term insurance. You can easily buy your policy online without requiring to undergo medical exams in the traditional way.
Quite in contrast, getting the latter of term vs whole life insurance, can be quite difficult for you. In order to get a whole life policy, you often have to prove that you are insurable.
Thus, there really are a whole array of pointers that make them rivals and we like to seem them as term vs whole life insurance.
Term and Whole Life Insurance and Life Situation
The differences between term and whole life insurance are wide and long. This makes us wonder, as we mentioned in the intro, whither way we should go. Life Insurance Mentors team have the following insights to help you decide the right way to go. In place of suggesting any particular policy, we have presented 3 life situations for you to understand your need.
Term Life for Life Situation 1
Say you are the sole breadwinner of the family. You have your spouse, kids and old parents. Certainly you have been saving regularly to provide a secure life to them so that they may live well enough when you are not by them. But it, the saving, needs time. How long? Say 20 years. What if your life is cut short midway? If the situation is like this, you need a term life policy for 20 years.
Term Life for Life Situation 2
You both spouses earn and have two dependent children. They are school goers. If you die, the children’s life will be affected. There will be burden on your partner spouse. You do not want to think of this and want to ensure that they live well even you are not by them. You know if your current income and savings grows, they will be able to live life in 10 years. Then term life is the best solution for you.
Term Life for Life Situation 3
Breadwinner or not, you have borrowings from financial institutions. You know you have a time-frame to repay your loan. You are aware that if you live out the time-frame, the loan will be paid up. What if you pass away? Your heirs will be in trouble. You need protection for the time-frame only. Then the term life better than any other policy for you.
Whole Life for Life Situation 1
You have always lived a life of independence and do not want to depend on others. You want to keep this spirit till the last day of your life. You want to get a real income replacement so that you remain as independent as you have always been. If this is how you think and do not withdraw your money from your cash value, you may consider whole life insurance.
Whole Life for Life Situation 2
You want that whenever you die, people around who you have always cared for, do not have inconvenience when you pass away. You want to do something so that even after your death you can leave them ample financial back-up that will make them as secure as they are now. Whole life can be an option for you.
Whole Life for Life Situation 3
You belong to an income group who cannot get so much money together to invest into a profitable business. You can save only a few hundred dollars a month and that will take years for any real accumulation before you can go invest it. Uncertainties of every type lie ahead and you want your savings to come to use for your family, in death as well as life. A life policy of permanent type is not very bad for you in that case.
What Life Insurance Mentors Say
If you have already read a few articles on the difference between term and whole life insurance, you may have noticed 95% of the finance pros speak strongly in favor of term life insurance. Only a few defend the whole life. We Life Insurance Mentors team favor neither of policies and leave it for you to decide.
Whichever way you go, we would ask to be cautious so as not to make any mistakes. So, we have the following recommendations for you to take into consideration while buying either of the policies.
While Considering Term Life
Term life insurance may act like a trap. A little bit raise in the cost promises you much more in the coverage. This may lead you to get still bigger coverage options. Fallen in this trap, many people buy term life insurance only to leave it soon later. So, buy as much coverage as you need.
Life insurance often becomes our priority in the moments when we are emotionally unstable. Situations like someone’s sudden death, a pain in the chest etc. prompt us to buy life insurance. This may lead us to make mistakes. This is the reason many love to sell it as a product that brings ‘peace of mind’ for you. But we would like you to take a pragmatic view and make it part of your financial planning.
For considering buying a life insurance policy, the best moments for you are when you are cool, calm and calculative.
While Considering Whole Life
The real value of whole life insurance lies more in the latter end of your longevity. It is worthwhile to consider whether a big or moderate amount of death benefit is really necessary at all when your children will already have their own children going to schools. Compare the different options of earning a passive income, along with their pros and cons, before you finally decide. Don’t forget one thing – most get-rich-quick promises are not what they claim. A well-informed decision will bring the ease of mind that you need in terms of your investment.
There is criticism that life insurance agents push whole life policies too hard as they earn ‘good commissions’ from whole policy sales. It is also said that they overstate the calculations to allure prospective buyers. The allegations are not baseless. We ask you not rely on the projections of profits that they make. We request you to remember the simple truth that the purpose of life insurance is not to make you rich.