Term or Whole Life…Which is Which?
There are two major types of Life Insurance policies that are universally offered today by Insurance companies.
Whole life insurance:
is permanent life insurance coverage for as long as you live or until you reach the age of 100.
- Advantage of Whole Life Insurance: is that your premium stays fixed and does not change for the life of the policy. Another benefit for Whole Life insurance is that there is a cash value feature that is guaranteed when the time comes to payout the policy.
- Disadvantage of Whole Life Insurance: is that unless you get this type of insurance at a younger age the money you pay as insurance premiums will be very high. The high premiums of Whole Life policies is the reason many people go for another form of Life Insurance which is called 'Term Insurance'.
Term Life Insurance:
is the most common type of insurance policy. Term insurance provides coverage for a fixed period (1 to 30 years).
- Advantage of Term Life Insurance: The premium paid for term insurance is much lower than what you would pay for whole life insurance. The premium you pay for term insurance is also fixed for the term the policy is in force for. For example if your term insurance is for 25 years then your premium will be the same for 25 years.
- Disadvantage of Term Life Insurance: Once the term expires and you decide to renew for another term your premium amount will change to a higher premium as you will be older and hence considered a higher risk. Term policies do not offer any cash value at the end of the term.
Term Life Insurance pays a fixed amount as set out in your policy to your designated beneficiary if you die within the policy period. Simply put if you die during the term your beneficiary gets paid. If you are still alive when the term lapses, you have the option of renewing the policy at a new (usually very high premium rate) or let your policy expire and get nothing.
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