In the last few years, the real price of life insurance has fallen. This has also meant a bigger gap between the cost of term life and whole life.
So what are the differences between the two? The simple one is that term life is straight insurance, you pay a premium and if you die while insured it pays out. Whole life will, as long as you keep paying the premiums, always pay out as it continues until you die. The extra edge of whole life is that it is an investment product so you should get the expected sum and more.
Term life insurance is a lot cheaper than whole life as it is pure insurance. You buy it for a set number of years, five, ten, twenty, thirty or forty. Sometimes the premium is guaranteed for the life of the policy, but often insurers can increase the cost every five years.
Term life only pays out if you die in the policy term. Some whole life insurance policies are just a cash value, with no savings or investment element, but there are few of these on offer. Although much more expensive than term life, whole life cover means you do not have to try to guess how long you will live, it will pay out whenever you die.
Most whole life policies are investment and savings vehicles. So part of the premium goes into a savings portion of the plan and accumulates after several years.
Term insurance is the much cheaper option, and a much larger amount of life insurance can be purchased with a smaller premium. Most financial experts recommend that term insurance is better and that you create your own savings plan, as you will receive a better return than you would get from a whole life insurance policy where you have to take what is a bet on what sort of return you will get in forty years time.
Life insurance: Hot topic: June 2010
