Term vs Whole Life Insurance

Term vs Whole Life Insurance is one of the most commonly asked life insurance questions. The answer to that question depends on the needs of the person shopping for a life insurance policy. The best way to determine which policy is best for you is to learn a little bit about both of them.

A term life insurance policy is in effect for a set number of years, such as 10 or 20 years. If the insured dies during that time frame, the policy will pay out its face value. If the insured dies after the term is over, there is no payout. There is no cash value in this type of policy. If you do not use it before the term is up, you lose what you have invested. However, it is the more affordable policy option of the two, which is why many people choose term policies.

A whole life insurance policy is a policy that is in effect for the insured's entire life, or until he or she chooses to cancel the policy. The premiums are quite a bit higher than a term life insurance policy, but these policies build a cash value. If you need some extra cash and have owned a whole life insurance policy for a while, you may be able to cash out some of the money to provide what you need.

So which is better? If you are working on building a savings account of your own, a term policy may be better. You can have it in place while your children are at home, providing your spouse with some money to fall back on if you should die early, while working towards building a savings account to use when the term is up. Remember, your family will not need as much money when your children are out of the house as it does when your children are living at home. A term policy will free up some extra funds to invest. The premiums are fairly affordable if you have good health until you reach your 50s. Some insurance providers will not provide term policies to individuals who are over 60.

If you cannot seem to save money well on your own, a whole life policy may be a better option. Remember, these build cash value and will be in place for your entire life. While there are definitely better ways to save, a whole life insurance policy is kind of like a "forced" savings plan, which is ideal for some people.

So which is better? The answer really depends on your needs. The best place to get an answer to your life insurance questions is your financial advisor, as he has an insight into the state of your finances. However, this brief overview will help you understand the difference between the two types of policies, which is a starting point as you make a decision for your family.