THE DIFFERENCE BETWEEN TERM AND WHOLE LIFE INSURANCE POLICIES
If you want to plan for your family’s financial freedom in the future, the thought of buying a Life Insurance policy cannot be left out in protecting them when you pass on. The named beneficiaries of the policy you buy can use the life insurance benefits to pay an educational cost, final journey or funeral expense, incurred medical bills before the policy holder’s demise, mortgages, and other costs of your estate. Knowing the difference between term and whole life insurance policies helps you decide which one is right for you.
The word, Term life Insurance is an insurance policy that provides coverage for a specific period, such as 5, 10, 15, 20 25 to 30 years. Normally the duration range from 1–30 years. If you purchase this type of policy and dies during the coverage period, the insurance company pays a death benefit or the value placed on the person’s life to whomever you’ve named as the beneficiary of the policy. If the policyholder is still alive when the policy ends, the insurance company doesn’t pay anything and the coverage ends.
Normally. whole life insurance lasts or is intended to last or remain unchanged indefinitely and it provides a death benefit and accumulates a cash value. The primary difference between whole life and term insurance is the duration of the policy. A whole life insurance policy ends when the policyholder dies, while a term life insurance policy lasts for a pre-determined period. Another important distinction of a whole life policy is the cash value that accumulates over time. Presumably, beneficiaries receive it after your death. The policyholder can take a policy loan against the cash value if he/she needs money for an emergency.
The trend and demand of prospects have left most Insurance companies innovative by blending both the whole life and term life policies into one policy. Many have also made it flexible for policyholders to change or convert any of the policies to either term or whole life policies. This normally helps the policyholders avoid the rate of premium increase since whole life policies are cheaper than term policies.
Young people normally prefer term life insurance policies since they are not expensive to pay and their partners are sure of benefit should their partners die. Insurance companies also know by actuarial means that, the probability of the young person dying is low, makes the premiums low with the hope that they will overlive the policies term of coverage.
It is true that term life insurance is inexpensive at the inception of the policy, premium increases with time as the policyholder extends the coverage or may discover that they can no longer afford the coverage or when they try to get a new policy. Premiums for whole life insurance policies are comparatively more expensive at the start of the policy, but they remain the same for the duration of the policy. With other policies, the cost of risk introduced is normally paid for more at the inception of the coverage of the policy.
At the inception of both policies, the policyholder decides on a predetermined amount of death benefit the insurance company will pay to their beneficiaries should they die and this is guaranteed.