Difference Between Term and Whole Life Insurance
It may not sound like a pleasant notion, but you do need to shop for life insurance in case something unfortunate happens, as you want those who you will leave behind to be financially secure. One of the most common questions asked by those who are looking for life insurance, is whether they should opt for term or whole life insurance. The difference between the two is what we will try to unveil here.
Firstly, here’s a brief definition of each. Term insurance is a plan which covers a policy holder for a fixed period of time. You can probably say that it is life insurance in its purest form, with no additives whatsoever. The two types of premiums for term insurance include level term and annual renewable.
Whole life insurance, on the other hand, is a type of life insurance with ‘additives’. The stark difference between a term and a whole life insurance is that the latter combines life insurance with an investment component. When taking out this type of insurance, you need to learn about terms like ‘mortality charge’, which is the premium for your insurance coverage, and ‘reserve’, which is the portion that earns interest.
For both term and whole life insurance, the policy holder is required to make monthly payments called premiums. Another common characteristic that the two share, is that they both offer a form of coverage known as the death benefit.
Now, the main difference between the two, is that term life insurance has the possibility for you not to receive any money if you outlive your policy term. This is because the simple purpose of the insurance plan is to provide your beneficiaries financial coverage in the event of your death. Meanwhile, a whole life insurance provides a plan holder with other financial benefits beyond the basic death benefit.
Generally, term life insurance is cheaper than whole life insurance ‘“ but one is more secure than the other. When deciding on a financial plan, make sure you understand the pros and cons of choosing one over the other, so that you can select the insurance type which best suits your personal situation.
1. Term insurance plans are an insurance policy that provide coverage for a specific period of time, while whole life insurance is a life insurance with an investment component.
2. Term insurance typically has lower monthly premiums, while whole life insurance involves a higher monthly payment.
3. Term insurance involves a risk of you not receiving any money if you outlive the term of the insurance policy, while whole life insurance eliminates this risk, because it allows you to borrow money against what you have already invested.
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