While the different types of life insurance may sound a bit confusing, there are generally two types of life insurance--term life insurance and whole life insurance. The names of each type of life insurance basically tell you what they are. Term life insurance is life insurance purchased for a specific period of time, or term. Whole life insurance is life insurance for the duration of your whole life. Both have advantages and disadvantages, making it a good idea to compare the two before purchasing.
Time Frame
Term life insurance is generally available in terms of five years up to 30 years. When the policy expires, a new policy may be purchased, although the monthly premium is likely to be more expensive for the new policy due to increased age. Whole life insurance premiums will not change, even if you become seriously ill or reach an advanced age.
Significance
Another difference between term life insurance and whole life insurance is that a whole life insurance policy will build a cash value after you pay your premiums for a length of time. The exact details will be covered in the policy, but the general premise is that a portion of the money you pay for your whole life insurance premiums is invested, which gives your policy its cash value. This is money that can be borrowed against or collected should you surrender the policy.
Considerations
Because of the investment aspect of a whole life insurance policy, the annual premiums will be greater than a term life policy, especially when a person is younger. As a person ages and term life policies would become more expensive, a whole life policy may become less expensive than a term life insurance policy, although that will depend on the age and physical health of the insured.
Function
Besides a lower starting cost, another reason why term life insurance is attractive to people is that it can be purchased for a specific time when it is needed most. There is no coincidence that the maximum 30-year term life insurance policy happens to equal the typical mortgage loan. Purchasing term life insurance to cover the repayment of a large loan is a common practice. If the insured party survives through the repayment of the loan, a smaller term life insurance policy can then be taken out when the first one expires.
Expert Insight
When deciding upon which type of life insurance policy to purchase, exploring all of your available options with an agent is usually best. Individual needs often dictate what type of insurance is best suited to your goals. Whole life will cost typically cost you more, but it has the benefit of establishing a value that can be converted to cash, while term life insurance will provide for families in the event of death, but nothing else.
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