Naturally we are all familiar with what life insurance is. As opposed to car coverage and a homeowners policy, life policies are primarily for protecting income instead of for replacing belongings in the event of a disaster or accident. A life policy replaces the income we normally make if we happen to pass away so that our family can continue paying the bills in our absence.
Though we have all heard of life insurance, not all of us are educated in the various types available. The two most common types on the market are whole and term. Since coverage is a personal decision, and different types are suited for different people, understanding the various offerings is important when one is shopping for a policy.
So what is the difference between term and whole life insurance? The most notable disparity between the two types is limitations. With term coverage, the policy is limited to a specific period of time. Whether it be a 20 year or a 1 year term, the policyholder is limited to claims within the term period. If the policy term expires and the owner of the policy passes away afterward, then nothing is paid out to the beneficiary.
Another difference between term and whole policies is the amount paid for premiums. Whole life insurance policies expire only when the policyholder chooses to cease payments or coverage. Because of this difference in overall length of insuredness, whole policies carry much higher premiums than the other sort of coverage. The biggest difference between term and whole life insurance premiums is that with whole coverage, premiums are locked in early and do not increase over time. Term policies have premiums that increase every time the term ends and the owner of the policy renews.
Understanding the difference between term and whole coverages makes it easier for a person to choose which would be best for their personal situation. For example, if you are getting a loan and a condition of the loan is that you have life insurance, then obtaining a term policy would be better. If you are looking to be proactive as a young indivudual and want to replace your income to your family, then whole would be better for you. If you want a policy to last a lifetime, whole is the way to go. Term policies are better for short-term needs.
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It is important to understand the difference between term and whole life insurance in order to know which is best for you.
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