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It is easy to get confused when comparing life insurance policies. If you have never purchased life insurance before, don’t let the insurance salesman talk you into anything without doing some homework first to determine what you really need. For starters, you need to decide between whole life vs term life insurance.
When you buy term life, you are buying life insurance and nothing else. It is just a basic life insurance policy with no extras. Term life is not an investment. It has no cash value at all, so if you pay your premiums for years you have nothing to show for it except that many companies will lock your rate for a certain number of years from when you buy the policy, or at least limit the amount of increase.
On the other hand, a whole life policy is marketed as an investment. You get life insurance, but you also get a policy that can be cashed out if you decide to cancel the policy before you die. If you pay the premiums on a whole life policy for a number of years, it may be worth a few thousand dollars or more by the time you retire.
It’s easy to be led to think that a whole life policy must be a better deal because you are getting something extra. However, that is not necessarily the case. It’s true that the term life doesn’t have a cash value, but the premiums are usually much lower as well.
When you are comparing a term life policy to a whole life policy, you have to take more than the price into consideration. Of course a whole life policy will be more expensive than a term life policy. But what more are you receiving in exchange? The salesman would have you believe the cash value provides extra value, but you don’t really get both the cash value and the insurance.
If you die while you are insured under a whole life policy, your beneficiary will get the life insurance amount, but not the cash value. So you could have gotten the same result by purchasing the cheaper term life policy. The cash value can’t be redeemed if the life insurance is paid out.
Now consider what happens if you buy a term life insurance policy. You save money over the cost of the whole life, so why not take the money you saved and use it to purchase an investment, such as a mutual fund. You still have the life insurance coverage, but now you have an investment too, and since they are separate, your beneficiary will get both the insurance and the proceeds of the investment when you die.
When comparing a term life policy to a whole life policy, you need to look at the possible outcomes for each to decide which one is the better deal. I can almost guarantee you that the term insurance policy will come out on top every time.
Life insurance can be complicated, especially if you don’t know the diffs between insurance types available. The types you’ll encounter most frequently are term and whole life, let’s compare whole life vs term life insurance, to ensure you get the most competitive term life insurance .
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Tags: family, insurance, life, life insurance, personal finance, relationships, term life insurance, wills