What is the diffent between term life insurance and whole life ...

by hirby

Whole life insurance is the type of plan that contains savings in it. The savings is technically called cash value. Cash value grows tax-deferred. If you ever want to take money out of it, you have to borrow it and owe monthly interest on it. If you surrender the policy, surrender charges may apply and possibly income taxes. If you die while the policy is still enforced, you will lose all cash value. Death benefit will be reduced by any missed premiums and any loans taken out of the cash value. As it says, whole life is where you pay premiums for life.

Term insurance is just regular life insurance without the savings. Since it does not contain any savings, term insurance is said to be inexpensive. You can buy lots of coverage for low amount of premiums. Since it is inexpensive, most people are able to save their money in a savings vehicle, such as bank accounts, mutual funds, stocks, bonds, and retirement accounts. If you outlive the term, most people usually reduce their coverage or they don’t need it anymore since they been investing since the time they got term insurance. Term insurance is only effective if you invest the difference.

To see a hypothetical cost between whole life and term insurance, go here: http://obe231.blogspot.com/2006/11/comparing-whole-life-with-term.html

Insurance agents will say that term insurance rarely pays out. I don’t know where they get their facts from. There’s a good chance they never sold term policies or they believe in what their company says. Nobody knows when a person will die. My company paid out over $825 million in death claims last year from term insurance. Over the 30 year period, the company has paid out over $10 billion in death claims. The company currently has over 100 million clients that has term insurance and continues to grow.

Insurance agents will also say that term insurance gets expensive when you renew it. Yes that maybe true, but which would you prefer? Paying $2000/year for whole life now or just $500/year on a 30 year term?

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