Sunday, October 12, 2014

What’s the difference between term life insurance and whole life insurance?

Life insurance is a murky world, to say the least, but rare is the company willing to step outside the sales pitch and provide you with information about what you need, rather than what they want you to buy. After all, that’s how they end up making money for shareholders, right? With that in mind, it makes sense to spend plenty of time going through all the information before you commit to a policy. After all, some of these life insurance policies aren’t very cheap. 

You really can’t trust a life insurance agent to sell you EXACTLY the policy you need, and the internet is rife with psudo-information that purports to help you make a life insurance decision, and even provides you with an oh-so-helpful 1-800 number you can call to request more information. Basically, everyone’s in on the game, more or less, (except this blog, of course!) so there are a few things you should pay attention to in order to get the best bang for your buck as far as life insurance goes.

Let’s look at the very basic differences between term life insurance and whole life insurance. First off, term life insurance, unlike whole life, is set up to insure you against death over a specified amount of time. The purpose of this insurance is to take care of major expenses that you’re paying off that would leave your loved ones in the lurch should you kick the bucket. This is insurance that is particularly useful while you’re still paying off your home. Not surprisingly, the terms are typically 10,15, and 30 years, which nicely coincide with typical payment schedules for big ticket things like homes. Of course, it can also be used to ensure that your family’s business stays in the family, as well as that your spouse doesn’t get stuck with the bill for your college tuition after you’ve passed. (It’s not cool to think about stuff like that, but it happens. Debtors will line up to peck away at your estate regardless of how young you are, and if your family doesn’t pay up on your obligations, the same process of collections, default, and credit damage can happen when no payment is forthcoming.

Term life is also typically pretty cheap, and may or may not require a physical exam in order to qualify, depending on the policy. It’s actually not too difficult to find term policies without physical exams, you just have to look.

Whole life policies are a different beast all together. You’ve probably heard a little bit about them from a handful of people or websites, but may not quite understand what they’re all about. Put simply, they’re insurance policies that you buy and pay into throughout your life. They cannot be rescinded as long as you’ve kept your premiums up to date and don’t try to defraud the company, though if you get one later in life, you’ll usually have to have a physical exam and be in excellent health to qualify and get the best rates. In fact, even if you’re in your thirties and have only minor health problems, you can find yourself paying quite a lot for insurance.

One of the benefits of a whole life policy is that the policy can be borrowed against for various expenses you’ll incur through your life. These policies are also more expensive than term policies. Basically, they know that at some future date, they’re going to have to pay on the policy. A term policy doesn’t necessarily pay after the term of the insurance expires.

So, there’s the basics. You’d do well to avoid the internet for too much of your purchase information here, and instead head to your local bookstore or library. Check out some of the titles available, and once you’ve read up on the topic, make a decision that makes sense to your circumstances!

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