| There are
two main types of life
insurance: whole life and term life. There are pros
and cons related with each type of insurance. It’s
up to you to do your research and decide which insurance
to go with.
With whole life insurance investments
are made with part of your premium. It provides you
with a tax-deferred cash value for investments made
during the term of the policy. Due to its investment
nature, it demands for higher premiums. This is in sharp
contrast to the mere hundreds of dollars a year that
a consumer would pay for a term life insurance.
Insurance
companies tend to be conservative to minimize the
risks involved when investing your whole life insurance
premiums. Term life policies often give you the option
to choose your investment strategy if you can assume
the risk and are knowledgeable with market investments.
A typical scenario for a term life insurance policy
would be that parents buy one until their children graduate
from college. This would ensure that in the unfortunate
event of their death, the expenses for education are
covered by the insurance company.
Term life insurance offers you security
only for a specific term or time frame. It is usually
renewable until the insurer reaches the age of 75. Whole
life insurance provides coverage for the whole life
or until the person reaches the age of 100. Essentially
the basic difference between these two types of policies
lies in the personal financial goals of the insured.
Short-term goals are fulfilled by a term life whereas
whole life insurance is considered more for long term
goals.
Due to the limited risk assumption,
a term life insurance policy is cheaper and ceases to
exist after the term ends. There is no tax-deferred
cash value as in the case of whole life insurance. Moreover,
the premiums increase exponentially as you grow older
and can actually become unaffordable. A whole life insurance
will ensure the financial independence of your loved
ones for your entire lifetime in the unfortunate event
of your death.
Which kind of policy you choose is
a personal priority based on various factors which drive
the decision towards securing the financial future with
a term life or a whole life policy.
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