Term vs. Whole Life Insurance

Term life vs. whole life insurance is the very first major decision facing someone looking for life insurance

Most people have heard these insurance “terms” but many have only a surface-level understanding of how they work. Do not worry, choosing term life vs. whole life insurance is not as complicated as it sounds. Although a blanket recommendation is not possible without knowing personal circumstances and priorities, here are the basics of what you need to know about these two types of life insurance policies.

Part of the premiums for whole life insurance are “set aside” to accrue a cash value for the policy, therefore whole life insurance is naturally more expensive than term life insurance. The question for people shopping for life insurance is which life insurance policy returns the greatest value for them. Most financial advisors will tell you to purchase term life insurance and invest the difference in premiums. In fact, although the cash value of a whole life insurance may eventually exceed the amount of premiums put into the policy, the low returns and policy structure makes it illegal to sell whole life insurance as an investment. One legitimate way to view whole life insurance as an investment vehicle is if you determine that you don’t have the discipline to set aside a portion of your salary on your own. It is also important to note that the longer you hold a life insurance policy, the smaller this disparity becomes. If you determine your retirement plan and savings requires the financial protection of life insurance for only 10 years, whole life insurance becomes an even worse choice. If, on the other hand, you foresee needing life insurance for 20 years or more, whole life insurance becomes a more viable option with lasting value.

Some attributes to whole life insurance:

• Permanent protections
• Builds cash value
• Loans are permitted against the policy
• Favorable tax treatment
• Level premiums
• More expensive to own

If your top priority is insurance value, then term life is the way to go. However whole life insurance has its own trump card in peace of mind. Whole life insurance policies have both guaranteed cash value and, if investment returns are high, supplemental dividends. It is this guaranteed cash value that attracts many life insurance customers. People enticed by the prospect of higher return rates can end up losing money toward their savings when the market takes a dive. Let’s face it, the prospects for financial reform legislation to prevent another collapse in the financial markets looks dim. Other people find peace of mind in the fact that given the likelihood that they don’t meet an early demise, their life insurance policy does not turn into wasted money. If peace of mind is an issue, but you’re still convinced of the financial value of term life insurance, make sure you buy a term life policy with a guaranteed renewal option, so you can extend your term life insurance policy regardless of any illnesses or conditions that you may contract in the years of your policy.

Some attributes to term life insurance include:

• Low cost
• No cash value
• Most of the time renewable
• In some instances convertible to permanent life insurance

Both term and whole life policies have certain guarantees and built-in versatility, as well as limitations. In addition to the cash values and guaranteed renewals, there are likely to be several possible policy options that will create added guarantees or versatility. Be aware that some guarantees will limit versatility and vice versa. For example, guaranteed life insurance, which doesn’t require a medical exam, is possible with both term and whole life insurance policies, but you need to read the fine print. Despite the convenience of forgoing a medical exam, policies costs and benefits are often better with that extra step. Whole life insurance policies with no medical exam frequently have more exclusions that limit death benefits and the qualifications for receiving those benefits.

Without the right tools, finding quotes for term vs. whole life insurance is twice as hard as shopping for a specific life insurance policy. Fortunately, V.W. Gould Agency has you covered. We will match you and your unique situation to several insurance companies. Take advantage of the peace of mind that comes with our over 100 years of experience. You can even talk to one of our insurance agents and review quotes and policy details from the comfort of your own home, taking a large chunk of stress out of an otherwise headache-filled process. Call for your FREE no obligation quote 386 734 3970

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