Term Life Insurance or Whole of Life Insurance Policy?

The search for life insurance can be frustrating and confusing, so it’s important to get the best policy for your own unique needs and circumstances. So many web sites offer discount life insurance, and as a result people often end up with a policy not suited to their needs.

One of the questions that arise time and again is whether a term life policy or a whole of life policy is best, and what’s the difference between them.

Term Life Insurance:

Term life insurance is a bit like leasing a car. You pay cover for a predefined term, and are covered for that term. However, at the end of the term, whether for example its 15 years or 30 years the deal is done and you simply walk away.

Term life insurance only offers protection for the duration of the mortgage, and is normally of no value when your mortgage is paid off.

Term insurance is generally cheap and is expected to fall over time providing you don’t suffer from a major disease. However, there are a number of different types of term life insurance policy:

* The first is known as level term cover, and it’s the most common type. With this form of policy the premium costs are locked in for as long as you hold the policy. In other words, you will pay the same amount throughout the entire term of the policy.Unfortunately, it means that as time goes by you could end up paying more for your life cover. However, the nice thing is that you get the benefit of paying at today’s rates. However, bear in mind that over time these rates could fall instead of rise.

* The second type is known as escalating term cover. This type of policy can be become expensive in later years, as you generally pay an increasing amount as the policy ages. However, there is an advantage, in that the payout at death also increases. This type of life policy is normally more suited to younger people.

* The third type is known as decreasing term insurance. In this case your monthly payments will stay the same, although the amount of cover you receive will reduce each year.

* The forth type of term life cover is increasing term insurance, where the pay out on death increases. However, to make up for this increase it will be necessary to increase the premiums from time to time, in line with changing circumstances.

* Finally, convertible term insurance is a type of term life cover that can be converted into an investment/insurance policy in the future. Normally, the value of such investments will be based on your health, at the time you bought the term insurance policy.

Whole of Life Insurance & it’s Advantages:

A whole of life policy can be more complicated and more expensive than term life insurance. However, a whole of life insurance policy covers you up until the time of your death, providing that you keep paying your premiums!. The advantage of these types of policy is that your family could receive a considerable lump sum when you die.

Whole of life policies can be more expensive and more complicated than term life insurance. Also, the investment you make can earn some interest each year. Therefore, since your investment generally grows each year, your premiums can actually reduce over time. You may also reach a time where the interest gained covers all the future premiums, which means you may have no more premiums to pay.

However, it’s important to understand that the final cash-in-value of a whole of life policy may or may not equal the amount of money that has been paid into the policy over it’s full term.

Summary:

The decision of whether to buy a term life policy, or whole of life cover comes down to your own unique needs, and circumstances, and what you wish to achieve.

The simplest form is a level term policy with a renewable option. This will allow you to get life insurance for as long as you may need it.

On the other hand, you might like to consider a policy that grows in value over time, giving you a very nice nest egg which you can benefit from, while you are still alive.

Both types have their advantages and disadvantages, and careful consideration and advice from a competent insurance adviser is vitally important.

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