If purchasing life insurance is what you want to do, then an overview of the available types should be helpful. In this article, you will learn about the variations on whole life insurance as well as the difference between whole and term life insurance.
Looking at what is meant by their names is probably the easiest way to understand the difference between whole life insurance and term life insurance. When you purchase whole life insurance, it will pay a benefit when you die and as long as you own the policy, then you are covering your whole life. What that benefit is depends on the value of the policy at the time of your death, but you own the policy even if you are no longer making payments on it. Also accumulating a cash value on a tax-deferred basis is whole life insurance. There's also the fact that whole life can pay dividends throughout the life of the policy.
On the other hand, term life insurance is purchased for a certain term or period. As long as you die within that period, term life insurance will pay an agreed upon amount to your beneficiaries. It will not pay if you cease to make payments or if you die after the term has expired. Another thing to keep in mind is that term life insurance has no cash value.
There are two other aspects of whole versus term life insurance that needs to be pointed out. The first aspect is that premiums for whole life insurance are higher to begin with, but remain steady over time. On the other hand, premiums for term life insurance are lower near the beginning of the policy, but increase over time.
Another aspect is that you can borrow against the cash value of a whole life insurance policy. Since term life insurance does not have a cash value, this aspect is therefore not possible.
Another thing you need to consider the two variations of whole life insurance. The first is a more flexible form of whole life called universal life insurance. Within certain limits, you can adjust the premiums as well as the amount of benefit over time with universal life insurance in order to suit your financial situation. This is made possible by placing the premiums in a fund that accumulates based on the interest rate. Just like a normal life insurance, a cash value that can be borrowed against is what this policy has.
On whole life insurance, the second variation is called variable life insurance. Similar to universal life is this type of insurance except for the fact that the premiums in the fund are tied to the financial markets and not to interest rates. The potential for loss is greater in this type of insurance but the potential for growth is greater as well.
When it comes to considering the purchase of a life insurance policy, you're going to have to make some choices.
Looking at what is meant by their names is probably the easiest way to understand the difference between whole life insurance and term life insurance. When you purchase whole life insurance, it will pay a benefit when you die and as long as you own the policy, then you are covering your whole life. What that benefit is depends on the value of the policy at the time of your death, but you own the policy even if you are no longer making payments on it. Also accumulating a cash value on a tax-deferred basis is whole life insurance. There's also the fact that whole life can pay dividends throughout the life of the policy.
On the other hand, term life insurance is purchased for a certain term or period. As long as you die within that period, term life insurance will pay an agreed upon amount to your beneficiaries. It will not pay if you cease to make payments or if you die after the term has expired. Another thing to keep in mind is that term life insurance has no cash value.
There are two other aspects of whole versus term life insurance that needs to be pointed out. The first aspect is that premiums for whole life insurance are higher to begin with, but remain steady over time. On the other hand, premiums for term life insurance are lower near the beginning of the policy, but increase over time.
Another aspect is that you can borrow against the cash value of a whole life insurance policy. Since term life insurance does not have a cash value, this aspect is therefore not possible.
Another thing you need to consider the two variations of whole life insurance. The first is a more flexible form of whole life called universal life insurance. Within certain limits, you can adjust the premiums as well as the amount of benefit over time with universal life insurance in order to suit your financial situation. This is made possible by placing the premiums in a fund that accumulates based on the interest rate. Just like a normal life insurance, a cash value that can be borrowed against is what this policy has.
On whole life insurance, the second variation is called variable life insurance. Similar to universal life is this type of insurance except for the fact that the premiums in the fund are tied to the financial markets and not to interest rates. The potential for loss is greater in this type of insurance but the potential for growth is greater as well.
When it comes to considering the purchase of a life insurance policy, you're going to have to make some choices.
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