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Whole Life vs Term Life Insurance

A lot of individuals fear buying life insurance because they don't understand how term life and whole life insurance options work. The traditional form of life insurance is a whole life insurance policy.  Most of these programs provide a fixed premium for the life of the policy that is based on the death benefit. 

The death benefit is what the insurance company pays the beneficiary at the time of your death. Whole life policies also have a guaranteed cash value.  This means you can borrow against the policy or even cash out the policy in the event you need to.  These features is what makes a whole life policy an attractive investment option. It is also important to consider the tax implications that the beneficiary will have to shell out from the proceeds.  Fortunately, the death benefit from a whole life policy is usually free of income tax to the beneficiary. Individuals with long-range financial goals may benefit most from a whole life policy.

On the other hand, term life insurance can be viewed as the opposite of whole life in that it is a temporary policy based on the length or term of the policy.  As a result, it is the least expensive kind of life insurance.  The time period that you want the policy to be in force and your age are the two main factors that determine the cost of the policy.  Typical policy terms are typically short like five years, but some can go on for as long as thirty years.  Unlike whole life where the premiums are fixed, the premiums for term life policies can be adjusted annually.  At the end of the policy term your insurance provider may allow you to renew the policy for a new specified period or allow you to convert it into a whole life policy.  Generally, term life policies have no cash value and you cannot borrow against them.  Therefore, folks with short-range financial goals that want the benefits of a life insurance policy are best suited for a term life policy.

Not to complicate things but it is not uncommon for people to have both a permanent whole life policy and a temporary term life insurance policy.  Individuals often have a term life policy to provide an additional death benefit at an affordable price.  For example, you buy a $250,000 whole life policy with your spouse as beneficiary.  You have kids and decide that you want to increase your death benefit to $400,000 with your children as beneficiary.  Purchasing a term life policy for $150,000 for a specified term could be less costly than increasing your whole life policy.

Sadly, most individuals today do not have any life insurance coverage. Those that do often have inadequate protection against the uncertainties of life. Depending upon your age and other factors, your premiums could be as low as a daily cup of coffee.  That’s very cheap considering the level of protection that life insurance affords.

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