Term Life Insurance Articles
How Term Life Insurance Differs From The Whole Life Alternative
2010-12-14
According to LIMRA International, a leading life insurance research firm, over 65 percent of U.S. households had some sort of life insurance policy, illustrating the prevalence and importance of life insurance. Generally, there are two major types of life insurance: term life insurance and whole life. Either type of insurance represents a contract between a purchaser, or the insured, and the insurance company issuing the term life or whole life policy.
Term life insurance provides an insured coverage for a specified term, which can range from 1 to 30 years. During this period, the insured pays a premium for the specified period. Term life insurance only pays the insured's beneficiary if the insured's death occurs during the policy's term. This means that, if the insured outlives the term, no benefit is received. At the end of the term, the premiums paid during the term are no longer guaranteed. Normally, these policies have no other benefit provisions.
Term life insurance offers pure protection with no savings component, which makes it the cost-effective means to obtain a substantial death benefit for a reasonable premium. Term insurance is generally appropriate for young families at the start of their earning years or for obligations of a limited nature, such as a mortgage.
Whole life, or permanent, insurance can be either whole or universal life insurance. Whole life offers either fixed or variable protection with cash value. In contrast to term life insurance, whole life accrues cash value over the lifetime of the policy. With these policies, the insured builds cash value and may borrow against this value, but the premium paid can be significantly higher than the premium paid for term life.
Whole life is the simplest form of permanent insurance. The premium remains the same throughout the life of the policy. The accrued cash value is guaranteed and the insured has the option of borrowing against the value at the current policy loan interest rate.
Universal life insurance is permanent life insurance with flexibility. With these policies, the insured, after paying a set initial premium, decides when and how much more he or she wants to pay into the policy. The insured can increase payments to build additional cash value, decrease premium payments, or even skip a payment provided the cash value can adequately cover the cost of the insurance and related charges. Cash value grows at a current interest rate, but never at a rate less than the minimum guaranteed amount. Available cash can be accessed through a loan or withdrawal.
Knowing the difference between term life insurance and whole life is critical to determining which type of insurance is best for an individual or family.
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According to LIMRA International, a leading life insurance research firm, over 65 percent of U.S. households had some sort of life insurance policy, illustrating the prevalence and importance of life insurance. Generally, there are two major types of life insurance: term life insurance and whole life. Either type of insurance represents a contract between a purchaser, or the insured, and the insurance company issuing the term life or whole life policy.
Term life insurance provides an insured coverage for a specified term, which can range from 1 to 30 years. During this period, the insured pays a premium for the specified period. Term life insurance only pays the insured's beneficiary if the insured's death occurs during the policy's term. This means that, if the insured outlives the term, no benefit is received. At the end of the term, the premiums paid during the term are no longer guaranteed. Normally, these policies have no other benefit provisions.
Term life insurance offers pure protection with no savings component, which makes it the cost-effective means to obtain a substantial death benefit for a reasonable premium. Term insurance is generally appropriate for young families at the start of their earning years or for obligations of a limited nature, such as a mortgage.
Whole life, or permanent, insurance can be either whole or universal life insurance. Whole life offers either fixed or variable protection with cash value. In contrast to term life insurance, whole life accrues cash value over the lifetime of the policy. With these policies, the insured builds cash value and may borrow against this value, but the premium paid can be significantly higher than the premium paid for term life.
Whole life is the simplest form of permanent insurance. The premium remains the same throughout the life of the policy. The accrued cash value is guaranteed and the insured has the option of borrowing against the value at the current policy loan interest rate.
Universal life insurance is permanent life insurance with flexibility. With these policies, the insured, after paying a set initial premium, decides when and how much more he or she wants to pay into the policy. The insured can increase payments to build additional cash value, decrease premium payments, or even skip a payment provided the cash value can adequately cover the cost of the insurance and related charges. Cash value grows at a current interest rate, but never at a rate less than the minimum guaranteed amount. Available cash can be accessed through a loan or withdrawal.
Knowing the difference between term life insurance and whole life is critical to determining which type of insurance is best for an individual or family.
