What is the difference in term and whole life insurance?
On considering buying a life insurance, which offers your beneficiaries with death benefits in case of your sudden death, you’ll find two most popular kinds of insurances, namely the term life and whole life insurance. Though both offer the said benefit, they are different in many ways like the terms of coverage and costs. For instance, a whole life insurance policy offers cash value that the term policy doesn’t. Therefore, before making a final choice, you would do well to understand what is the difference in term and whole life insurance.
A whole life insurance policy lasts for your entire lifetime. Insurance companies work out the cost of such policies assuming an average lifespan of hundred years for humans. Once the duration of the policy is over, you can receive the amount for which you had insured even when you are living.
A term life insurance policy provides coverage for a specified number of years. You may buy such a policy with a coverage period extending from just five to thirty years. Many opt for this kind of insurance with a coverage period of twenty years when they have young children, enabling them to get some financial help on their premature death.
A part of the premium paid for buying a whole life insurance policy goes towards the insurance and the balance is diverted to a cash account which keeps growing with time. The contract is designed in such a manner that on reaching an age of hundred years, the cash value equals the insurance value. This kind of policy also allows you to take out cash from your policy before it has matured and take loans against the same. On the other hand, in case of term life insurance, the entire premium that you pay goes towards your life insurance cover, meaning there’s no benefit of cash account and therefore, you are not permitted to take any loan against that policy. When it comes to understanding what is the difference in term and whole life insurance this is the key difference.
On buying a whole life insurance policy, you may pay the entire premium in one stroke or decide to make regular contributions towards premiums. When you opt to keep making regular payments towards your premiums, the amount of premiums remain unchanged, meaning during the entire duration of the whole life insurance policy you’ll be required to pay the same amount regularly till you are hundred years of age. In case of a term life insurance policy, you are required to pay premium amounts for the duration of policy and are generally renewed every year. With your growing years, the amount of premiums also grows up, meaning they are not even as in case of whole life insurance policy.
As you can probably guess the amount payable in case of term life insurance is lower than the whole life insurance as you’ll be paying for a shorter, chosen timeframe and you don’t pay towards cash account. Another important consideration is the age at which you decide to purchase a policy. Though the payable premiums in case of a whole life policy remain unchanged, if you purchase it at a younger age, the amount of premium is low than if your purchase it later in life. So, if you purchase a term life insurance policy later in life, it may cost you more than a whole life policy purchased during your younger age.
Having known what is the difference in term and whole life insurance, you may opt for term life insurance to take care of financial requirement of your young ones, in case of your premature death or go for whole life insurance if you wish to provide assets to your children or create funds for your retired life.