Term Life Insurance vs Whole of Life Insurance
When looking for life insurance, it’s important to find the best policy for your own unique needs. There are so many web sites offering online discount life insurance, so it’s a common mistake made by many, to end up with a policy that’s not suitable.
One of the questions that arise time and again is whether a term life policy or a whole of life policy is best, and what’s the difference between them.
Term Life Insurance Benefits:
Term life insurance is a bit like leasing a car. You pay cover for a predefined term, and are covered for that term. However, at the end of the term, whether for example its 15 years or 30 years the deal is done and you simply walk away.
Term life insurance only offers protection for the duration of the mortgage, and can be of little value when once your mortgage is paid up.
However, term insurance is cheap, and the cost can even reduce over time. There are five main forms of term life insurance, and these are as follows:
* The first type is known as level term insurance, and it is a very popular policy. Here, the premium costs are locked in for the entire term of the policy. This means you pay the same amount every month/year for the term of the policy.
* The second type is known as escalating term cover. This type of policy can be become expensive in later years, as you generally pay an increasing amount as the policy ages. However, there is an advantage, in that the payout at death also increases. This type of life policy is normally more suited to younger people.
* The third type is known as decreasing term insurance. In this case your monthly payments will stay the same, although the amount of cover you receive will reduce each year.
* The forth type of term life insurance is what’s known as increasing term insurance. Here the lump sum payable at death increases each year. This increase in value of the policy is made up by increasing the premiums periodically over the years.
* The fifth and final type is known as convertible term insurance. It is a type of term life insurance that you can convert at a later stage into an investment vehicle. The value of the investment is normally based on your health when you originally took out the policy.
Whole of Life Insurance Policies:
Whole of life cover covers you right up until your death. Provided, of course, that you keep paying your premiums! It can pay out a substantial benefit to your loved ones when you die, and it can also accumulate a cash value over time.
This type of policy is more expensive and complicated than term life policies. The investment you make earns some interest each year. So, providing your investment grows, your annual premiums can actually reduce over time. Also, there may come a time when the interest produced can cover all your future premiums, and as a result you may have no more premiums to pay on your policy.
However, it’s important to understand that the final cash-in-value of a whole of life policy may or may not equal the amount of money that has been paid into the policy over its full term.
The decision of whether to buy a term life policy, or whole of life cover comes down to your own unique needs, and circumstances, and what you wish to achieve.
The simplest form of life insurance is a level term policy with renewable option. This allows you to buy life cover for as long as you may require it.
On the other hand, a whole of life policy might suit you better if you need a policy that grows in value over the years.
There are advantages and disadvantages to both forms of insurance, so it’s always important to get advice from a competent insurance adviser.