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Life Insurance: Which Is Better Whole Life Or Term Life?
Author: Scott Frank
A lot of individuals fear buying life insurance because they don't understand how term life and whole life insurance options work.
A whole life (permanent) insurance policy works as an investment vehicle where you are the investment. The vast majority of these plans provide a fixed premium for the life of the policy that is based on the death benefit. The death benefit is what the insurance company pays the beneficiary at the time of your death. Whole life policies also have a guaranteed cash value. Insurance companies will let you borrow against the policy or even cash out the policy in the event you need to. These features is what makes a whole life policy an attractive investment option. It is also important to take into consideration the tax implications that the beneficiary may have to pay from the proceeds. Normally, the beneficiary of a whole life policy escapes from having to pay income tax on the benefit. A whole life policy may be a good investment for those individuals that have long-range financial goals.
On the other hand, term life (temporary) insurance is just the opposite of whole life in that it is a temporary policy based on the length or term of the policy. As a result, it is the least expensive form of life insurance. The time period that you want the policy to be in force and your age are the two main factors that determine the cost of the policy. Typical policy terms vary between five and thirty years. Usually, premiums are adjusted over the term of the policy up to the stated maximum premiums. At the end of the policy term your insurance provider may allow you to renew the policy for a new specified period or allow you to convert it into a whole life policy. Generally, term life policies have no cash value and you cannot borrow against them. Therefore, this type of policy is best suited for those individuals with short-range financial goals.
Not to complicate things but it is not uncommon for people to have both a permanent whole life policy and a temporary term life insurance policy. Individuals often use a term life policy to provide an additional death benefit at an affordable price. For instance, you buy a $250,000 whole life policy with your spouse as beneficiary. You have kids and decide that you want to increase your death benefit to $400,000 with your children as beneficiary. Purchasing a term life policy for $150,000 for a specified term will usually be less costly than increasing your whole life policy.
Sadly, most individuals today do not have any life insurance coverage. Those that do often have inadequate protection against the uncertainties that life brings. Depending upon your age and other factors, your premiums could be as low as a daily cup of coffee. That's very cheap considering how valuable life insurance policies can be.
About the Author
Discount Insurance Marketplace provides a one-stop shop for obtaining affordable online insurance quotes. People interested in whole life insurance quotes can save up to 70% and receive an instant online quote.