what is the differance between whole life insurance and term life insurance?

Answer 1

Whole life is where you have different payment options to pay your premiums. You may make a one single lump sum payment, make installment payments such as 20 years (call 20 pay-life), or pay continously for life until age 100. Whatever payment you choose, you are covered for life.

Whole life also has a cash value element attached to it. It is important to know that all life insurance are term insurance. Whole life insurance has two parts: 1) The insurance which is term and 2) Cash value.

At the beginning of the policy, term insurance is cheap. So, most of your premiums are going into the cash value. Of course there is monthly expenses to maintain the policy and that is only known by the company. As you get older, term gets expensive, so less of your premiums is going toward the cash value.

If you want to use the cash value for whatever reasons, you may borrow it. Like other loans such as mortgages, you will owe monthly interest on it. This monthly interest you pay never goes back into the cash value.

If some day, you don't want the life insurance anymore, you have surrender options. 1) You may take the cash value as a check. 2) You may use the cash value to purchase a lower face amount. 3) You may use the cash value to pay the premiums for certain amount of years.

If you die, you will lose all cash value. To me, this is why I hate whole life insurance very much.

With term insurance, all you paying is strictly the insurance. There is no cash value, therefore premiums of term insurance are very cheap. SInce its inexpensive to purchase term, you have flexibility to invest the difference (either into a 401k, IRA, education plans, etc). If you die during the term, your beneficiary gets the death benefit and your investments. If you outlive the term, then you have the choice of either renewing it, canceling it, or change the coverage amount.

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Answer 2

When buying life insurance, you want a policy which fits your needs without it costing too much. First, you should decide on how much you will really need, how much you can afford to pay, and the type of policy you want. Second, find out what various companies charge for that specific kind of policy.

One way in deciding on how much life you will need is to figure out how much cash and income your dependents will need if you were to die in the near future. Think of life insurance as a source of cash needed for final exprenses, paying off taxes, mortgages and/or other debts. Life insurance can also provide income for your family's living expenses, educational costs, and other future expenses. Your insurance policy amount should come as close to making up the difference between 1) what your dependents would need if you were to die now, and 2) what they would actually need.

There are three basic and current life insurance policies: term insurance, whole insurance, and endowment insurance. The following is an outline in which the important features are noted.


TERM INSURANCE

Coverage protection: for a "term" of one or more years, usually 30 years being the maximum
Death benefits: paid only if the policy owner were to die within that term of years
Renewable: some are renewable for more additional terms even if the olicy owners' health has changed
Convertible: before the end of the conversion period, the policy owner may trade the term policy for a whole life or endowment policy even if he/she is not in good health

WHOLE LIFE INSURANCE

Coverage protection: death protection for as long as the policy owner lives
Cash values: a benefit the owner does not lose when he/she stops paying the premiums
Loan: the cash value may also be used as collateral for a loan

ENDOWMENT INSURANCE

Income benefit: pays a sum or income to the policyholder if he/she lives to a certain age
Death benefit: if the policy holder were to die before that certain age, the death benefit would be paid to the designated beneficary or beneficiaries
In summary, do not buy life insurance unless you plan to remain faithful to it. A policy can be a smart buy when hels for 20 to 30 years, but it can be very expensive if you decide to quit during the early years of the policy.

When you finally receive your new policy, be sure to thoroughly read through it and inquire with the agent on anything that you do not understand. It is also important to review your life insurance policy every few years or so to keep up with income changes and life responsibilities.

Answer 3

Whole life ins builds cash value. When you cancel this insurance, you will get this back. Some whole life plans allow you to take a loan against the cash value that you built up. However, you do need to pay this back. If you die with a loan on your contract, the loan is subtracted from the death benefit.

Term life ins does not build cash value. Premiums for Term life insurance are based on your age. For some plans, the premium increases each year. You can also buy 10- or 20-year renewable plans. You pay a flat premium each year. At the end of the 10 or 20 year term, you can reapply. Some employers offer term life insurance as part of their benefit plans.

It is best to seek the advice of an insurance agent of financial planner if you can't decide which is the best option for you.

Answer 4

Whole life insurance stays at the same rate no matter what age you reach and term means that it only lasts for a certain amount of years for instance 20 years and if you renew it after those amount of years it costs more because you will be older. You can also have a cash in value on Whole life an not on Term. Term insurance is cheaper than whole life insurance.

Answer 5

There are several differences: Whole life is much more expensive Term life expires, and whole life doesn't. Which is better for you, depends on the PURPOSE of the life insurance. What's the GOAL? You set the goal first, and THEN decide which financial tool meets that goal best - and it might not be life insurance. Just like, you don't go into Home Depot and ask, which is the best tool to buy? It depends on the JOB you want it to do. For MOST families, term insurance fits the goal best, especially when paired with an investment account. But for a few, it's whole life.

Answer 6

Good question...the biggest difference is whole life has cash value to it, meaning that even before you die you can get money out of the policy. Term insurance is sold in 10, 15, 20 year terms and the policy will only pay if the person dies with in the selected term. Whole life will pay whenever the person dies. Term is usually the best choice for most because it is MUCH cheaper than whole life.

Answer 7

Whole life: A system where the insurance premium pays the term coverage and set aside an amount for investment creating cash value.

Term: Basic insurance stated by insurance companies where the age, occupation, health, place of living, determine the cost of insurance for a person.

The best way to deal with insurance is buy "term and invest the difference". If Whole life cost $65 per month for $50,000 life policy, and term cost $9.45 for 10 years for $50,000 worth of coverage: You would buy Term at $9.45 and put an extra $55.00 each month on your home mortgage (as an example). In most cases Insurance companies pay 2 - 3% interest on the investment arm of Whole Life insurance. Your home mortgage interest is around 6%.

Therefore you are getting 6% on your $55 per month and saving expenses you would have had to pay if you did not prepay the mortgage.

Answer 8

In short, comparing whole life and term life is like comparing owning a car, and leasing a car. You own a whole life policy, and it builds cash value which you can redeem at a later date, and you have coverage for as long as you own it. With term life, you pay the premiums and you are guaranteed the insurance coverage for a state period of time. After that time is up, you no longer have coverage.

Answer 9

The link below provides a great explanation of whole life insurance. Term life insurance is basically to cover you in case you die for a specific term, for example from age 25 to age 50. Once you reach that age, you stop paying and are no longer covered.

http://www.investorwords.com/5307/whole_life.html

see also

http://www.investorwords.com/5974/term_life_insurance.html

Answer 10

whole life insurance will cover you your "whole life time", term life covers you during the "term" which could be 10, 20, 25 years