Deciding to take out a life insurance policy needs some careful thought. Choosing between term or whole life insurance is one of the issues that consumers often come across in this sector as they start searching for options. What are the core differences between the two?
What is Term Life Insurance?
This kind of policy is set out to last for a specific number of years, known as the term. During this time a consumer has life protection in the event of their death. Once their policy is completed, however, they will not have any protection in place. If they die after the coverage has ended then no life insurance payment will be made. Any benefits given are wholly based on death.
What is Whole Life/Permanent Insurance?
Here, the life insurance coverage is designed to last for life rather than a set term and works on more of an investment basis. This guarantees a payment on death if the policy is kept up to date and, in some cases, a return on the cash invested in the policy if profits are made.
What are the Advantages and Disadvantages of Term and Whole Life Insurance?
Both of these policy types come with some pros and cons. For example term policies may:
- Be cheaper than whole life options as there is no guarantee that the insurance company will have to pay on the policy.
- Suit consumers that want life coverage during those years when it may be essential but not later in life when it may not be that necessary.
But, on the other hand, they may not:
- Give any return on the consumer's investment at all as they only pay out on death.
- Give any coverage outside their term leaving the individual uninsured later in life.
Whole life policies, however, may:
- Give a guaranteed payment on death and, in some cases, investment returns, the ability to cash in profits or borrow against the investment value.
- Give life insurance for life if that is what the consumer wants.
The disadvantages here may include:
- Costs with whole life policies will generally be higher than those given to term products.
- Fees, costs and investment policies and procedures may make this less of a viable investment.
At the end of the day the individual, their circumstances and their preferences may play a part in the decision making process. Those that feel that whole of life insurance is not necessary may well opt for term coverage instead and vice versa.
As with the purchase of any insurance policy, cost is an important factor here. Consumers may want to use insurance comparison sites to compare costs and investigate ways to reduce costs before choosing the right policy.
Carol Finch - Carol Finch is the Topic Editor for Retirement Planning, Budgeting, E-Commerce & Technical/Business Writing on Suite101.
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