Difference Between Term And Whole Life Insurance

If you’re not clear on the precise difference between term and whole life insurance, you have come to the right guide on insurance. I promise: by the end of this short article you will be clear.

There a few major differences, so let’s take them one at a time. Term life is insurance that you buy for a limited, defined term. This term could be as little as a year, but it’s usually between 10 and 30 years. Whole life, on the other hand is good for the whole of your life, i.e. until you pass away, or until you reach a very old age as specified in your policy, say 90 or 100 years old. So, the #1 difference between term life insurance and whole life insurance is whether there is a fixed length or term of the policy, or there is not.

The implied rule here is that you know for certain that with a whole life policy you will receive a death benefit payout, as long as you make your premium payments, unless you yourself decide to terminate the policy early, for some reason. With term life you know for sure that you will not get a payout unless you die within the term of the policy. It’s very simple, and note that it’s hardly a question of whether one type or another is ‘good life insurance’: the best policy is the one that make the most sense for you.

The next difference between whole life and term insurance? Let’s look at their investment function, or lack thereof. Term policies have no investment value. You cannot borrow against them and the payout amount is fixed from the start. With whole life, as well as other forms of permanent insurance, you can borrow against the cash value amount that has built up, at an interest rate that is probably going to be lower than credit cards and other loan sources. Now, most unbiased insurance experts at least (i.e. experts not actually engaged in trying to sell you whole life insurance!) will tell you that while whole life might be good life insurance in a generic sense it is not a great investment, but that is the subject of another post.

We just touched on the basis for a big difference between term life and whole life insurance, that of the concept of ‘cash value’. This amount builds up over time, based on interest earned by the premiums that you pay. The idea is that the cash value amount will cover the guaranteed payout that the insurance company is obliged to pay when you die. You may borrow against this amount, but be careful that you don’t overdo it as you may impact the eventual policy payout, which is the reason for buying life insurance in the first place! Also, since borrowing against the cash value is a little like paying the insurance company to borrow from yourself don’t put too much weight on this feature as a reason to buy whole life insurance. Oh yeah: term life does not have this cash value feature. Your death benefit, should your beneficiaries get it, is all that you are owed. It’s a fundamental tenet of the basics of life insurance.

Here’s a big one– the premium amounts that you pay, for a similar payout amount. As any term life insurance guide will tell you, the difference is huge. Whole life premiums are multiples of what term premiums are for the same coverage amounts. Now, although anyone would be attracted to the idea that his heirs will definitely get a payout upon his death, the high cost of whole life premiums is enough to make a smart a smart buyer think twice, and this leads us to the final, essential point:

Most people don’t buy whole life insurance. They buy term. Good life insurance for them primarily means lower payments and a clearly defined policy.

OK, whole life wouldn’t exist as a product unless it was a good idea for some. But rather than paying the sky-high whole life premiums, most folks opt for a term policy (maybe with an option to renew after the initial term finishes) and try to diligently invest money that they might have paid toward a whole life policy. In this way they will very probably have a larger nest egg when they pass away than the promised whole life payout that their sizable premiums are going toward each month. This is the most critical difference between term life insurance and whole life, and while it’s always best to get a second and third opinion on life insurance basics as you augment your knowledge with a good whole and term life insurance guide, it’s why you’ll most likely end up buying term life.

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Life Insurance Advice

It’s easy to ask around for advice on life insurance, just like it’s easy to find people with opinions on how to successfully make money in the stock market. Asking questions and getting educated is always a good thing, but the problem is that getting life insurance advice from nonprofessionals may very well result in conflicting advice and confusion on your part. You need to Continue reading “Life Insurance Advice”

Life Insurance Sales Leads

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Obviously finding a way to quickly and systematically get high-quality life insurance leads is what it is all about when it comes to life insurance sales. Before the Internet, agents employed all sorts of creative and interesting methods to acquire or create insurance sales leads. Direct mail campaigns, educational seminars, or mini events in places where potential prospects might congregate (i.e. a mall) were a few methods commonly employed. Agents still rely on real-world face-to-face meetings for creating rapport and trust as well as a list of callbacks. The Internet however, just Continue reading “Life Insurance Sales Leads”

Key Man Insurance And Corporate Planning

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Key man life insurance, also known as key person insurance, exists to protect companies from the loss of people who are vital to the function of their business. The idea is that a contribution of some employees is so large that the risk their potential loss is worth paying to ensure against. We are not talking about typical employees here, we’re talking about employees with super-specialized knowledge or those who bring a completely original or unique contribution to an enterprise. They could be Continue reading “Key Man Insurance And Corporate Planning”

Life Insurance Leads-A Guide

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Whether you are an established life insurance agent looking to expand your business, or a new agent trying to create some momentum, you have to be aware of the potential that the web has in helping you acquire life insurance leads that you can convert. The process of essentially outsourcing this vital part of your business can get very expensive quickly in terms of both time and money if you aren’t careful. On the other hand, finding your own leads can take you away from what you do best: actually selling to qualified life insurance leads. In this Continue reading “Life Insurance Leads-A Guide”

Your Guide To Different Types Of Life Insurance

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Life insurance is an essential part of the financial portfolio of responsible adults who want to protect the interests of their loved ones in case something happens to them. With all the types of life insurance policies available, investing time to educate yourself about them is vital to making the right decision for you and your family. But this will take hours, not weeks, and the return on your time investment will be huge. All you need is a place to get comprehensive insurance information, and that is exactly what this site is. Continue reading “Your Guide To Different Types Of Life Insurance”

How Does Life Insurance Work

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Life insurance is not high on the list of things people walk to think about, or chat with friends about in their spare time. Anything that involves acknowledging our own mortality is by definition hardly a recreational activity! However, rather than letting it get you down or having the question of “How Does Life Insurance Work” in the back of your mind as something you are putting off, if you will take just a little time to find out how life insurance works, you can actually turn the whole prospect into something positive, and here’s how: Continue reading “How Does Life Insurance Work”

It’s Time To Look At Life Insurance Policies

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Does the process of getting a life insurance policy really have to be intimidating and time consuming? Not necessarily. Now, educating yourself well enough to make a good decision regarding the basic life insurance question, ie choosing between a term life insurance policy or a whole life insurance policy, is complicated. However, you and your family will Continue reading “It’s Time To Look At Life Insurance Policies”

Overview Of Life Insurance Basics

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Life insurance basics state that one should get a life insurance policy as a means of protecting their family, investments and the overall financial stability of those they consider dear to them in the event that an unforeseen incident occurs separating them from their family forever. The last thing anyone wants is to Continue reading “Overview Of Life Insurance Basics”

Life Insurance Glossary of Basic Terms

Life insurance concepts and terms can be confusing! Before you decide to purchase a life insurance policy, you need to understand the definitions of a few basic terms.  Below is a short list of the most basic (and most important) life insurance terms you need to be familiar if you are planning on having any sort of conversation with a life insurance agent.

What is the Beneficiary?

The beneficiary is the person who will receive money if the insured dies.  For example, if you started a life insurance policy today, you would have to specify who you’d like the money to go to if you pass on.  If you are married, you’d most likely choose your spouse to be the beneficiary.  The beneficiary of your life insurance policy, however, doesn’t have to be your spouse.  It can be a relative or close friend.  The important thing is that you as the insured choose the beneficiary.

What is the Death Benefit?

As described in most life insurance policies, the death benefit is the money that your beneficiary will receive if you pass on.  When you started your life insurance policy, you were required to attached an amount of money to the policy.  This money is termed the death benefit.  The death benefit can range from as low as $50,000 all the way up to $5,000,000 and even more!  The most common amounts for the death benefit range between $250,000 and $2,000,000.

What is the Term?

The term is the length of time the insurance company is required to honor the policy (as long as you stay current with your payments).  Terms can range anywhere from 5 years all the way up to 20 years and longer.  The longer the term, the more expensive the insurance will be.  Also, the older the insured, the more expensive the insurance will be.  Most life insurance policies don’t have a term; term life insurance policies are the only type of life insurance that have an expiration date.

What is Cash Value?

Most life insurance policies have a cash value associated with them.  This means if, for whatever reason, an insured needs to cancel the insurance, or possibly allow it to lapse, he or she will receive some money.  The reason for this is because whole and universal life insurance policies couple as investment and savings vehicles.  They provide a lot more benefit then just insurance against death.  Payments for whole and universal policies are much larger than payments for a term life insurance policy, but with whole and universal life insurance, a portion of that money is being invested and saved for you.

What is a Rider?

A rider is a provision or addition added to the policy.  Adding children to a life insurance policy is considered a rider.  If your children die, you can receive a small amount of money if you added your children as riders onto your policy.  Riders don’t have to be children.  It is any provision that you choose to add to the policy outlining restrictions or limitations.