What’s the Difference between Term and whole Life Insurance

Term life insurance, or term insurance, is life insurance which covers the bearer for a specified period of time, or term. A term can be virtually any length of time, but typically, term insurance policies are designed to be held for periods of five to thirty years. If the bearer dies during the policy term, a death penalty is paid. These policies can be held for short periods of time or renewed into old age. Their extreme range and versatility makes them a good choice for almost any insurance candidate.

Permanent Cash Value Insurance

Permanent, or “cash value” life insurance is nothing more than term insurance combined with a tax-sheltered savings plan. These insurance plans should be held for life. You pay a higher premium for these plans than for term insurance policies, because a portion of your premiums goes into a savings account. However, accessing funds from this account before your death can be difficult, and usually results in heavy tax penalties, so it might be wiser to buy term insurance and invest whatever additional money you would have spent on a cash value insurance premium elsewhere.

Insurance agents can be very savvy when trying to get you to purchase a cash value policy over term insurance, stressing that these more expensive policies “always pay out.” Well, term insurance always pays out as well if you continue to renew it at higher premiums as you age premiums you would be paying anyway with a cash value policy.

Guaranteed Renewable Term Insurance

The option to renew your term insurance without a medical exam is probably the most important factor in choosing a policy. Those who do not consider this component before purchasing life insurance could very well find themselves in undesirable situations. If, for instance, a person were to contract a terminal disease in the 9th year of a 10 year policy in which renewal without a medical exam was not guaranteed, they would be considered uninsurable once the policy expired. No one would sell them another policy, and all the money they had spent on life insurance would have been wasted. This is obviously something to be avoided, so be sure to talk to your agent and read the fine print before purchasing a policy.