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.