Whole Life Insurance Vs Term Life Insurance

There are so many components to whole life (also called permanant insurance) that it is hard to give a concrete definition. Each company has different features with their whole life policies. However in general, whole life consists of these key attributes:

-Covers the insured for their whole life
as long as the premiums are paid for the policy, the insured is covered for the face amount(dollar benefit chosen) for their entire life. The one exception is if the insured lives to 100, then you win the game and can get the full benefit amount while you are still living.

-Premiums remain level for the life of the policy
whole life policy premiums will not change as you get older, so if you are paying $30 at 30yrs old, you will be still paying the same premium when you are 70. Obviously, the younger you are when you purchase the policy the lower your premium will be.

-Builds Cash Value
each time your premium is paid, the insurance company invests part of your premium. That money grows tax deffered and usually at a gauranteed rate. This cash value can be borrowed against by the insured for different reasons, including paying your premium. If a policy is cancelled, the cash value is given back to the owner of the policy. If the insured dies, this cash value is given to the beneficiary along with the face amount and is not taxed.

PROS

-Builds cash value that can be borrowed against to pay future premiums. When a policy is surrendered, the cash value can be paid to the owner of the policy.

-Policy covers you for your whole life, so you know you are covered for a certain amount regardless of any circumstances.

-Policy premiums will not change, so you know what you will be paying at all times.

-Possible paid up insurance. If a policy is surrendered, the cash value can be used to buy a lower amount of insurance that will cover you for life. So you will not have to pay any premium, and still have coverage.

-Some policies in the event of a disability will waive your premiums, so you no longer have to pay for the policy. Meanwhile, the policy will continue to grow cash value as if you were paying for it and you are still covered!

-Some also contain riders that allow a person that is diagnosed with a terminal illness to obtain their death benefit before death.

CONS

-Traditionally more expensive than other forms of life insurance

-These policies can be harder to qualify for because of strict underwritting.

Term insurance is fairly simple. When you purchase a term policy, you are buying coverage for a specific period of time. If you die within the time period specified in your policy, the insurance company will pay your beneficiaries the face value of your policy. The term is usually set a 5, 10, 20 or 30 yrs. At the end of the term, you are done paying for the policy, and you no longer have coverage. Term insurance can be renewed at the end of the term, but the premium will increase because you are now more of a risk. Thats it! Simple.

Chosing the right insurance plan is going to be different for everybody. It is nearly impossible to say "this is the absolute best thing to do" for everyone. All i can do is tell you what i have decided to do for myself, and why.

I am 27, in good health, have a mortgage and soon plan to have a family. These were the major factors in my decision.
I wanted to have something to cover my mortgage for the next 15 years, have coverage to make sure my future kids would make it through college, and have a definite benefit for funeral expenses.
I decided to get a term life policy that would cover me to age 65. This is a low cost policy, with a large benefit that would cover the mortgage, and education cost if i die before 65. I also purchased a small ($15,000) whole life policy that obviously covers me till death. I bought this policy in the event (hopefully i do) that i live past 65, so i won't have to renew my term policy at a very high premium. I won't need a large sum of money if i die after 65, because i will no longer have a mortgage or education expenses to take care of. Therefore, just enough for funeral expenses was sufficient. I feel with this decision, i am not paying a fortune, and have the coverage i need.