What's the major difference between Term and Whole Life Insurance?

Good question... There should be many out there who have answers. Term insurance is the least expensive type of life insurance and it is usually for a term period (interum period). In a sense car and home owners insurance is a form of term insurance; as it is renewed each year and it has no growing (cash) policy values. For most people term is the most cost effective in terms of risk/reward and asset management.

It does have a downside but not a big one. Most large and diversified insurance companies offer other permanent life insurance products like whole life, universal life or variable life.

The life insurance industry is phasing out of quality whole life insurance and there are only 5 or 6 good companies which offer whole life. Universal life from a large and diversified company is worth a look and is much less than whole life.

If there are future health issues to consider that is if you have a career in the medical field for example and are exposed from time to time to blood born diseases; you will have a different long term need than someone who is not in that field and you may want life insurance for your entire lifetime. If so some form of permanent is the best value for you.

If you ever want to convert your term policy (part or parcel) to a policy which is offered by the term company; make sure the company offers plenty of policy choices, and the term you buy is guaranteed convertable without evidence of insurability.

Also make sure that the term contract has living needs benefit. This means if you become ill and have a short time to live you can access some of the death benefit before the fact and use it to settle or pay off your bills.

Term is the least expensive initially and especially good just starting out in business or with a family, but it is just a piece of the whole plan that is needed to and through retirement. Good luck and aDios

What is cash value life insurance? It is a term policy to age 100 that contains a savings vehicle in it. Cash value comes in many forms, such as whole life, universal life, variable life, or a mixture of those words together such as variable universal life or universal whole life, etc. The advantages of having cash value life insurance is that you are protected until age 100, you can use the cash value anytime for any use such as paying your premiums, and interest on your cash value is tax-deferred.

The disadvantages of having cash value life insurance is that you are paying lots of premiums for low amount of coverage, no cash value is accumulated during first two years of the policy, rate of return is very low, and if you use any of the cash value, you will owe monthly interest on it. This interest does not go back into the cash value, but rather kept by the insurance company because the money you taken out of the cash value is treated as a loan. In many policies, if you were to die, your beneficiary will receive the face amount and all cash value will be kept by the insurance company. Keep in mind, if you use any of the cash value and you did not pay it back, this amount will be deducted from face amount upon your death.

Another disadvantage of cash value life insurance is that they are riddle with insurance fees. The most noticeable fee is the surrender charge. This is clearly stated in the policy of how much cash value you will get if you surrender the policy. Then there are fees you don't see such as administrative fees, policy fees, maintenance fees, and all these other operating fees. If your cash value life insurance is a variable policy, that means your cash value is invested in the stock market. Investments too have their own operating fees. If you combine investments and life insurance together, now you have so many different fees that eats away the returns on your investments.

You are probably asking, why would anyone buy this kind of life insurance? First reason is that many people do not understand how this policy works. Second reason is that people don't buy life insurance, they are sold on it. The agent who sells cash value life insurance does not care about you or your family. All he/she cares about is how much commissions he/she is getting paid and they going to use whatever deceptive sales tactic to make you buy it.

So, what is term insurance? It is the type of insurance that provides a level death benefit for life. Just like car insurance, if you don't pay your premiums, you will lose coverage. Advantages of having term insurance are: premiums are very low during the term, you have more flexibility to invest your money in a savings vehicle (hence the phrase, "buy term and invest the difference"), and if you were to die during the term, your beneficiary will get the face amount and all your investments. Another advantage is that you can change the amount of coverage without affecting your savings and vice versa. (In cash value life policies, you are stuck with paying into both.)

The disadvantage of term that while premium remain fix for certain amount of period (10, 15, 20, 25, 30, or 35 years), the premium will go up when it is time to renew. Majority of term policies provide renewable term coverage up to age 100. But there are some term policies that stop coverage after the level term expires because the insurance company wants you to convert it to whole life or universal life.

Why would people buy term insurance? First, premiums are very low and remain fix during the term. In the early stages of your adult life, you probably have lots of debt to pay off such as your mortgage, you probably have kids to support, and you probably don't have much money saved for retirement. So you need lots of insurance coverage to protect the family. As you get older, your kids are all grown up, your mortgage is or almost paid off, and you better have lots of money saved for retirement. As you get older, you probably won't need life insurance or need as much coverage as you did 20 to 30 years ago.

What happens when the level term expires? When the level term expires, you enter the phase of the contract called "Annual Renewable Term." That means you have the right to renew the term without having to provide proof of insurability. The premiums will go up every year or so (check the policy on how often the premiums goes up after the level term). Depending on your policy, you are usually given several options when the level term expires.
(1) You may convert it to a permanent whole life policy (which I don't recommend).
(2) You may exchange it to another level term (I recommend that you significantly lower your coverage amount to a minimum of $20,000). You may need to provide proof of insurability.
(3) You may refuse to pay the premiums to cancel the policy (if you do this, I highly recommend that you allocate the money toward your retirement).
(4) You can change the death benefit to the amount you really need. In most cases, the amount of coverage you need is usually lower than what you needed years ago. In fact, you probably won't need life insurance as long as you enough money saved.

I believe Whole Life Insurance is like a saings. But I am not too sure. Check these sites, because you may have a better understanding from them.
http://articles.directorym.com/Term_Life_Insurance-a894.html

http://articles.directorym.com/Whole_Life_Insurance-a895.html

Term is usually referred to as temporary coverage because it is only good for the term it is puchased (ie: 10 years, 20 years, etc.). If you die during the term, your beneficiary collects.
Whole life is usually referred to as permanent coverage because it will last as long as you do but you continue to pay premiums at the same rate for life. As long as you pay, the beneficiary will collect when you die regardless of how long you live.

Well, cost.

Term is "pure insurance". It's about 10% of the price of whole life, and the rate is set one term at a time - up to 20 years.

"Whole life" has a "savings" element (with a crappy return), and you pay it your "whole life", the same rate, but it's a MUCH higher rate than you'd pay with term.

Term insurance provides a set amount of death benefit to an insured's beneficiary for a set amount of time at a set price. For example, when you're young, you can get a 5 year term policy for (let's say) $15/month. After that five years is over, the price will likely increase because 1) you're older and 2) you might have had any kind of medical problem that makes you higher risk for life insurance.

For these reasons, many people opt for whole or universal life insurance. I'm employed in the insurance industry, and I have a universal policy on myself. It is usually cheaper than a regular whole policy, and the cash value builds as you pay for your life insurance. Eventually, your cash value will equal or exceed the actual amount you've paid in, which means you could extract all the money you've put in, and still have had life insurance for years (just in case).

In some companies, such as State Farm, the universal policies come with Guaranteed Insurability Options, which give the insured guaranteed opportunities to buy additional amounts of insurance based on AGE ONLY (no medical, no matter what). My next chance will be when I'm 25, and even if I have a stroke by then, I can still purchase $25,000 more in life insurance at a normal 25-year-old's rate.

The bottom line for any life insurance policy: the younger you get it, the better! You can go to www.statefarm.com and find an agent that can explain the details of each policy and figure out which is best for you now, and in the future. Good luck!

I think this question has been asked on this forum every day for years. Why not do a little research?

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