Two basic life insurance policies - Term and Whole life insurance

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Two basic life insurance policies - Term and Whole life insurance

by: shepexpt Total views: 17 Word Count: 571

A term life insurance policy provides cover for a set amount of time. This duration is called the term of a policy. Often people will seek a life policy that covers between ten and thirty years, for example, to cover their working life, mortgage repayment period or the length of time they have dependants. For such people, a term policy will provide affordable cover for this crucial period. When the term ends, their financial responsibilities should have reduced and often a policyholder will have saved enough money, to replace their need for life insurance.

On expiry of a term policy, if life cover is still sought, a policyholder has a number of options. Firstly, they may purchase a new policy for an increased premium, which reflects their increased age and possible decline in health. Secondly, some term polices include an option to convert to a whole life policy or an option to renew the existing term policy. However, these options will typically incur increased expense for a limited death benefit, as the policyholder will be older. Whether or not a term policy has one or both of these options will be determined upon its commencement.

A whole life policy covers the life insured for their entire life. Premiums must be paid for life, to keep a policy in force. Some types of whole life insurance offer the option to condense the premium into a shorter or single payment period.

Whole life polices accumulate a cash value that is tax deferred. This cash sum may be withdrawn in the form of a loan. Providing that any borrowed funds be repaid, the death benefit will not be reduced. This cash value can be considered as the policyholder’s asset.

When choosing whether to opt for term or whole life insurance the best plan will depend on the circumstances of an individual. Term insurance is the cheapest form of cover and it can last for up to thirty years. The problem with a term policy is that when it runs out, a policyholder will find they are less insurable. An increase in age and possible deterioration in health will mean insurance premiums escalate or insurance may even become unobtainable.

The main disadvantage of a whole life policy is its high cost. The premium paid must fund both life long insurance and the savings element.

It may be a viable option to take out two life insurance polices. A whole life policy, which is cheapest when the insured is young, could be purchased with a small face value to provide adequate cover for later life. At the same time, a term policy could also be purchased. This could be set to stay in force until the insured is no longer responsible for dependants; and their mortgage debt has been paid off. Careful planning of these polices, should mean that when the term policy expires, there will be no need to renew it. The best way to save you from scam or any loss of money is to research though different insurance providers get an advice from some financial expert and have a better understanding on these life insurance terms. Then it will be very easy to differentiate between term and whole life insurance and to select one best for you.

About the Author

Mitchel is writing in insurance topics from long time. For more information on life insurance and to choose a best life insurance policy, please visit us at TheHelpGroup life insurance.

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