Why Are Whole Life Insurance Rates So Much Higher Than Term Life Insurance Rates?

To understand rates for whole life insurance, or permanent life insurance, you must first understand how it works, so here is some life insurance advice.  To do this, we can best look at term insurance first. The premium is what is payed each month to the insurance company.  The premium is determined by one thing in term life insurance – the amount at risk.

The insurance company calculates the amount at risk by looking at the probability somebody is going to die and how much they would have to pay if that person died.

In term insurance, the only thing is the amount at risk.  You can have individual or joint term life insurance if you have a partner. Since the probability of dying becomes so great in the later years of life, life insurance companies usually have an age maximum on which they will offer term insurance; this is usually age sixty-five, especially among low cost term life insurance companies. To solve this problem, whole life insurance was made.  Whole life insurance premiums are comprised of two parts – the amount at risk and a savings element.  The amount at risk is about the same as for term insurance, but the insured pays extra to build up some savings.

These savings will grow through investment earnings over the person’s lifetime, and these savings, together with the amount at risk, comprise the face value of the policy.  Near the end of the person’s life, the savings element is so large that the amount at risk is very small, so the insurance can be extended until the end of the person’s life. Therefore, in whole life insurance vs term life insurance calculations, whole life insurance rates will always be higher than term life insurance, because they are also building a savings element.  In order to find the best whole life insurance rates, you should speak with a broker or an agent; he or she is an expert at finding you the best insurance available.

After you compare whole life insurance rates, be sure to review the each plan’s features – the cheapest plan isn’t always best. Whole life insurance ratings are the same as term insurance; the ratings are the values assigned to each applicant that show his or her probability of death.  These are the same with both kinds of insurance – there is no natural tendency for persons who are more likely to die to select one type or the other.  Therefore, they are the same as term insurance.

So, when you are shopping around for life insurance, don’t be surprised to see that whole life insurance rates are much higher than term insurance like a return of premium life insurance/return of premium term life insurance policy, because they will be.  Whole life insurance, though, is part of any sound financial plan, and it should not be avoided because of its seemingly high cost.

--------------------------------------------------------------------------------------------

If you liked this article, get email updates (they're FREE)

Enter your email address:

Delivered by FeedBurner

--------------------------------------------------------------------------------------------
About FPT Guy