Explaining The Difference Between Term And Whole Life InsuranceExplaining The Difference Between Term And Whole Life Insurance

Life insurance is touted as a necessity for anyone with a family to support or a business to protect. It's also recommended for those who wish to leave an inheritance to someone. The choice of when to purchase life insurance (and how much to get) is complicated enough, but the most puzzling decision is often choosing a type of life insurance. How do you know whether term life insurance or whole life insurance is best for you?

The Difference Between Term and Whole Life Insurance
• A term life insurance policy is purchased with a set term or period of time for which it is in effect. Terms generally range from 5 to 30 years. A death benefit is only paid if the policy holder dies during the term; otherwise, the policy is worth nothing.

• Whole life insurance has no preset term, and will last until the policy holder's eventual death - or for as long as the policy is paid into.

Whole life insurance is more expensive than term, especially in the first few years of the policy, when insurance companies invest a chunk of the premiums to cover the large expense they'll have to pay at the end of the policy.

In addition, whole life insurance may offer options not available with term policies, such as the option to invest more money into the policy as a savings plan or to draw some of your investment out in later years (an option known as cash value life insurance).
When to Choose Whole Life Insurance

Whole life insurance is a popular choice for those who have no problems affording the higher premiums. This kind of policy ensures that the money you invest in life insurance will never go to waste, since the policy will last as long as you want it to, ending only when you stop paying into it or with your death.

Whole life insurance is a wise choice for anyone who:
• has a family to support and wants to know they'll have financial stability for as long as necessary

• wishes to leave an inheritance to a friend, family member, or as a gift to a charity

• plays a vital role in operating a business (and plans to do so for at least the next 15 to 20 years) and wants to ensure that the business will survive in the event of their death

• is interested in the forced investment aspect of a whole life policy

• does not want to risk paying premiums into a policy that may be worth nothing if the term runs out before their death

When Term Life Insurance Makes Sense
Term life insurance is a smart choice if you know that your reasons for purchasing life insurance are time-limited.

This is a viable option for someone who:
• has a family to support and wants to know they'll be looked after if a major breadwinner dies while the children are young

• has a mortgage and wants to know it will be paid off - and that their spouse will be able to keep the house - in the event of an untimely death

• is in their 60s, 70s, or older and wants to leave something to a family member(s) or a favorite cause

Purchasing life insurance is a big decision, and it's important to consider the differences between term and whole life insurance before choosing which option is best for you.
by Jake Barnes
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