Whole Life Insurance Versus Term Life Insurance
Trying to select a life insurance is not an easy task when there is more than one choice available for you to choose from. There is the whole and term life insurance which can look similar if you have no idea on their differences.
The first difference is premiums for term life insurance increases over time as the possibility of death increases. This type of insurance is renewable after a certain period with a higher premium, has lesser coverage each year as in a decreasing policy and convertible to cash value policy after the specific period. However, whole life insurance premiums will be constant for lifetime but of higher amount than term life insurance premiums.
The reason why premium for term life insurance increases over the years is to cover insurance’s cost. Thus, the amount of premium would be lower in the beginning and gradually increases. Things are different in whole life insurance because the cost of insurance is lower than the premium in the beginning. The additional amount is retained as cash value component which will then be invested to obtain a return of around five to six percent of annual rate. In later years, the cost will be higher than the premium and money will be taken from the profits of the investment of cash value component to recover the cost.
Since you will be paying lower premium for term life insurance, the extra money can be used for other types of investments to obtain better returns whereas whole life insurance gives you cash value which can be used when there is a need to borrow money. Observe and look for policies which have attributes such as guaranteed returns and dividend payments.
Before you make a decision on choosing which type that you want, try to assess factors such as your financial resources and the purpose of you buying it.
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