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Knowing the Difference Between Term and Whole Life Insurance

Ever wondered what the difference between term and whole life insurance is? There are so many insurance policies that sometimes you don't know which is which. Both term insurance and whole life insurance squarely fall under life insurance generally.

Life insurance is so key that it is worth your consideration if you care about your family. Most especially, if you are newly married or a new parent then you must start budgeting for life insurance so that if in the unforeseeable future, you die prematurely your dependents will not unduly suffer. Since life insurance also comes in different forms, you must understand the terms, costs, limitations, and tax treatment of each policy you consider.

The basic and probably the most important thing to know is the difference between term life insurance and whole life insurance. You should also know the advantages of one over the other. And then looking at your financial standing and your situation, you may decide which one to opt for.

Term Life Insurance Explained

Term insurance, as the name implies, is a life insurance policy which is valid only within a set period (usually ten, twenty, or thirty years). It is simple to understand this type of insurance. Normally, you would decide the term first and a premium will be set for you to pay each year. You will be required to pay this premium every year and if you are in good standing and you die prematurely, your beneficiaries will be paid a certain predetermined amount.

On the other hand, if you pay consistently till the set term is due and you are still alive, the policy ends and you can't lay claim to any money. Unlike whole life policies, term policies are not investment vehicles. You only need to pay your premium each year to keep the policy in effect.

Whole Life Insurance Explained

Whole life policy on the hand is considered to be a lifetime policy. As long as you keep paying your premiums, you keep the policy in force for yourself the whole of your life term. In getting a whole life insurance rate, there is an investment component to it. So there is a combination of insurance and investment. The mathematics of it is somewhat complex so in simple terms, understand that it is something like a forced savings which combines your life insurance with your investing.

Having known the difference between whole and term life insurance, you can now decide which is best for you looking at your financial situation and peculiar circumstances. But as always, you need to talk to a professional before making the final decision.