Term life insurance is a popular choice for many people because of the low premiums associated with it. Term policies, however, are only valid for a certain number of years. You must get a new insurance policy when your term life insurance expires, which will usually require higher premiums because of your older age or worsening health condition. If you would like your insurance coverage to last for a long period of time, whole life insurance might be better.
Identification
Unlike term life insurance, which covers you only for a specific period of time, whole life insurance guarantees you insurance coverage for your whole life, regardless of how long you live, as long as you pay your premiums. Whole life insurance premium policies generally stay the same (they do not increase as you age). The premiums associated with whole life insurance are generally much greater than those of term insurance at the start of the policy. This gets balanced out by how the fact that you would have to pay much higher premiums to renew term insurance policies when you are older.
Function
Like with all life insurance policies, if you are insured, you must agree to pay a specific amount to your beneficiaries when you die. This money can be spent for your funeral arrangements, to pay off debts or replace your income. This amount, known as a death benefit, can be decreased by loans you take against your policy or premiums you owe. While you normally pay whole life premiums during your whole life, some insurers allow you to provide premiums over a specific fixed amount of years, or even provide a one-time payment.
Features
Whole life insurance builds up a cash value that accumulates over time. The insurance company invests your premiums, usually in conservative types of investments like bonds, and uses the returns it gains to fund your cash value. The insurance company makes these investment decisions.
Benefits
Whole life insurance is normally best for younger people who expect to pay insurance premiums for many years and would like the security a fixed payment provides instead of investing in increasingly expensive term life insurance policies.
Considerations
There are several kinds of whole life insurance policies that have different accompanying costs, requirements and premiums. Some pay policyholders dividends. Some do not. Make sure you understand all the details involved with a whole life insurance policy before purchasing it. Ask your insurance agent to clarify anything that is not clear to you. Whole life insurance can be expensive if you surrender it early, which also should be taken into consideration when deciding to invest in this type of insurance.
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