In centuries pas,t life insurance has been used as a method of reducing risk to traders; when they travelled their goods and lives would be covered and should they die, their heirs would receive a sum of money. In present day life insurance remains essentially the same but its use has become more diverse the two main types being whole life insurance and term life insurance. Life insurance can now be used as a retirement vehicle, security for loans and to provide dividends. Now more than ever, deciding whether life insurance is right for your is exceedingly difficult. Investing in something as important as life insurance requires careful consideration and an informed decision.
Whole life insurance covers the policy holder for their entire life; in contrast, term life insurance is a policy which only lasts for a particular number of years, or a ‘term’, after which the policy holder may be given the option to renew the policy. In both cases the policy holder will pay a premium fixed at the beginning of the policy however in the case of a term life policy on expiration of the policy should you decide to renew it is very likely that your premium will increase.
Whole life insurance is more costly that term life insurance. This is because it comes with an investment portfolio as well with providing a death benefit. It offers the option of reinvesting the interest gained from investments to increase the death benefit. Term life insurance costs less because there it does not include the investment aspect of the whole life insurance policy.
Term life insurance is a death benefit policy, this means that upon the death of the policy holder a lump sum will be paid to the beneficiary under the policy. Whole life insurance is more diverse as its benefit can be paid in the form of dividends, used for cash advances or the entire policy can be cashed out at any time prior to the death of the policy holder.
The whole life policy guarantees the policy holder coverage for their lifetime. Conversely, once the term on a term life policy expires its death benefits are also extinguished. As a result if the policy holder outlives his policy which he had purchased specifically for a death benefit all his instalments would have been for naught. On the other hand, term life insurance may be ideal because of its relatively lower cost and duration if the policy holder simply purchased the policy to ensure that in the event of his untimely demise his family or beneficiary would not be left in an unfortunate financial position as regards a particular commitment.
If you decide that whole life is best to suit your needs, you are going to want to shop around. Because of the permanent nature of this type of insurance, it is advisable that you select from only the best whole life insurance companies. You want to make sure the company standing behind your policy is going to be around.
The above are some of the main factors to consider when determining which form of life insurance best suits your particular needs. Whole life insurance, although more costly, provides permanent coverage with a death benefit and the benefits of investment. It also allows you the freedom to cash out your policy prior to death. In contrast, term life insurance death benefits are only certain for a number of years and that lump sum will only be paid if you die within the term. The freedom of a term life policy extends only so far as to give you the option to convert it to a whole life policy. If your aim is to provide short term coverage for a specific number of years then a term life policy may be the better option.