The Simple Difference Between Whole and Life Insurance


Buying life insurance doesn’t sound like anything fun to think about, but it certainly doesn’t seem as though it’s a difficult process. After all, you want insurance, so you call and ask for it. If you are like so many people, you might assume you have to call a few insurance companies, ask for some rates, compare them and then choose how much you want to have and list your beneficiaries. Easy, right? It is pretty simple, but it’s not exactly that simple. For one, you do have to undergo some tests to see about your health. It might take around 30 minutes for someone from the life insurance company to come to your home or office to perform a few tests, take a few samples and evaluate your health.

Then comes the difficult part; do you choose term or whole life insurance? Do you even know the difference? I didn’t. Of course, I was 21-years-old and had just returned from my honeymoon when I made the decision to take out a life insurance policy on myself. I did not know much of anything at that point, but I did know that I wanted to be sure I had insurance to care for my husband and the new house we’d just built should anything happen to me.

What’s right for you and what’s right for me might be two very different things. My agent listed the differences, helped me decide and we finalized all the paperwork necessary for me to obtain life insurance. Now that you are in the same boat, you might want to know the difference so you have some ideas about what it is you want and need before you begin looking at policies.

Whole Life Insurance

Basically, the name is precisely what it suggests that it is; life insurance that lasts your entire life. it’s for your whole life in terms of coverage. It’s a bit more complicated than a term policy, but it’s pretty simple to understand. You choose to take out a whole life insurance policy, you pay a bit more. The good news is that you can take out cash by borrowing it, or you can surrender the policy and take home the cash value of the policy at any point during your life.

You are required to pay back anything you borrow, or you will reduce the benefits your family receives upon your death. All the money you earn in this account is tax-deferred, and your family is guaranteed this money when you die. In a nutshell, the entire policy lasts as long as you live and you need not do much more than simply allow your insurance company to renew the policy each year when the time comes. You will pay a bit more for this type of policy, but you can also cash it out and borrow against it when the time comes.  Whole life is considered an “investment” on top of the policy by most accounts whereas term:

Term Life Insurance

Sometimes this is referred to as pure life insurance, as it’s really only a policy that protects you if something happens to you before you are good and old and die of natural causes related to old age. Since many people don’t want to think about the fact that death is inevitable and that it might actually happen earlier than they like, this is the type of policy that many younger people choose to offer their families.

Term is only good for a certain number of years. The most common number of years someone might choose a term life insurance policy for is 20. However, many people also choose to have a 30-year policy. These are much less expensive, but they also offer you far fewer options than a whole life insurance policy.

For instance, a term policy has no value. You cannot borrow money from this policy, and you cannot cash it out and take the money that you have paid in over the years and call it your own. The good news is that the premium typically does not change at all throughout the course of your life insurance policy, which means you need not worry about your payment going up at any point.

Term policies are typically best for those who believe that they need some income for their family if something happens during a time in which they are financially vulnerable. For instance, if your family is young and you choose a 20-year policy, you’re basically stating that you are going to have your home paid off and all things related to caring for kids taken care of by the time your term policy ends and you’ll no longer need to have any life insurance.

Which policy fits?

Which policy is right for you is a mystery to me. I cannot tell you which way to go, what to choose or how to go about picking the right one. However, now that you know the difference between the two as well as your own financial situation, you might have a better idea which life insurance policy is better for you.

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