Term Life Insurance vs Whole Life Insurance

Life insurance is an important part of any financial plan.  It protects those who are financially dependent from the financial consequences resulting from their provider’s death, and thus loss of financial support.  Life insurance is available in many different varieties now i.e. joint term life insurance, but they can both be grouped into two categories: term and whole life insurance.

Term Life Insurance

Traditionally, all life insurance was term life insurance.  This protected the beneficiaries from the death of the insured for a certain period of time, ten years being the most common.  After the period of coverage passed, there was no longer any benefit left for the beneficiaries.  Thus, if the insured dies after the ten year period, the beneficiaries receive nothing.  If the insured dies during the period, however, the beneficiaries will receive the face value of the policy, or the entire amount of the policy.  Term life insurance is the simplest kind of life insurance, especially from a low cost term life insurance group.

Usually the premiums, or monthly payments, go up at each period of ten years, because the insured has an increased chance of death at each new year period.  This continues up to a maxmimum age, usually at 65, after which the insured is no longer insurable, because the likelihood of death is too high to warrant life insurance.  Because it is the simplest type, and because it only covers up to a certain age, term life insurance is the cheapest kind of life insurance available.  Nowadays we have return of premium life insurance and return of premium term life insurance policies, among others.

Whole Life Insurance

Whole life insurance solves the age problem.  Whole life insurance is insuring the insured for his or her “whole life,” which is where the name comes from.   The whole life insurance policy starts with premiums above the cost of insurance at a young age, and continues through to a certain age, usually one hundred.  Here’s some life insurance advice: by overpaying in the beginning stages of one’s life, one will be able to accumulate enough “extra” so that one can continue paying the same amount in the end of life, when insurance is too high to normally afford.  The death of the insured in whole life insurance always results in payout to the beneficiaries, unless of course the policy lapsed due to nonpayment of premium.  Whole life insurance comes in many varieties; the policies vary from rigid payments and set earnings to variable payments and variable earnings.

Both types of life insurance are useful for different things; one is not inherently superior to the other.  Either way you’ll want a guaranteed acceptance life insurance policy no matter what the type.  Any good financial plan will contain both types of life insurance, as well as others such as disability insurance and long term care insurance.