Term vs. Whole Life (cash value) Insurance

There are two basic types of life insurance: Term and Whole Life (cash value)

Term. Term life insurance provides coverage for a specified number of years for a specific premium (payment amount). There is no cash value attached to the policy.  It simply pays out upon the death of the insured.

Length of the term, premium to be paid, and the amount of the policy are the three parts of term life insurance.  These are varied in combination by insurance companies.  This makes term life insurance very flexible and appropriate for most needs.

Mortgage insurance is a popular type of term insurance.  It provides for the complete payoff of a home mortgage upon the death of the insured.

Whole Life. Conversely, whole life insurance includes a cash value and level premium for the life of the policy.  This type of insurance policy has many advantages over term.  These are: guaranteed cash value; guaranteed death benefits; fixed premiums; and the cash value is not reduced by the mortality or expense charges to the policy.

One can also use the cash value in the policy of a whole life insurance plan to draw against for personal use.

Whole life policies are designed to grow with the insured and pay handsomely at the end.  While there are those who decry this type of policy because compared to other investment vehicles it is not as robust in its returns, it remains a favorite among those who wish to add to and diversify their investment strategy.  A whole life policy is also a good way to invest in a child’s financial future.

The Decision. Ultimately the end customer must decide the purpose for obtaining insurance in order to make an informed decision as to which type to purchase.  There are no two situations the same and it is a good idea to look at all options before making a choice.

Given the inherent benefits, some have opted to purchase both types of policies for their portfolio of insurance.  The policy can realize the best benefits of each of each product. The insurance chosen performs for the insured based on the strengths of each one.

Once the decision has been made between the two types, the insured can rest knowing that catastrophic life insurance will be there as needed.  Hopefully later rather than sooner. Family members are secure in the knowledge of the benefits of the policies.