Term vs. Whole Life Insurance: Knowing which one to Choose
Have you spent hours agonizing over whether term vs. whole life insurance
would be a better investment? Are you concerned about which one will offer you the best monetary return? Read here
to determine whether whole life or term insurance is right for you.
A whole life insurance policy provides a financial return on a monetary investment upon the
policy’s maturity or the person’s death. An individual is required to pay a fixed premium each month to cover the
policy’s cost. This amount is then payable to a beneficiary at that person’s death.
The policyholder can borrow against the policy’s cash value. If the amount borrowed is not
repaid, it is subtracted from the cash settlement when the policy matures or is surrendered. Alternatively, if the
owner of the policy needs cash, he or she can surrender the policy for its current cash value.
Whole life insurance policies are purchased for the duration of one’s life. The premiums do
not change or increase while the policy is in effect. These policies are more effective for estate planning than
for investment.
In contrast, term life insurance offers coverage for only a certain length of time. These
policies can be purchased for people who desire coverage for one year, or for thirty years. At the end of this
time, if the person remains alive, he or she can either elect whether or not to purchase another term
policy.
Term policies cost much less than whole life policies. In addition, they are often
economically more feasible for the ordinary person. Most of the time, people are able to invest more effectively by
purchasing a term policy, and placing the additional money that would be spent on a whole life policy in an
investment account.
Whole life insurance, however, is much more
beneficial for estate planning, especially for wealthy people. Through insurance trusts, they are able to cover the
costs of estate taxes with a whole life policy. People with large estates should consult with a financial planner
to determine if this is effective for them.
One other factor to consider when evaluating term vs. whole life insurance
policies is age. People who are at least 40 to 50 years of age may find that whole life policies are their best
option. Again, the most effective method of determining this for certain is to consult with a financial
planner.
|