The decision to buy life insurance is common when people get married and start having children. Life insurance works by insuring a person's life. In the unfortunate event that the insured person dies, a "death benefit", which is a sum of money stated in the policy, would be delivered to the beneficiary of choosing, usually the spouse or children of the insured.
Life insurance can be used as a valuable tool to protect your family in the event of a death in the family, but it can also be used as an investment tool. When deciding on the kind of life insurance for you, the terms "whole" and "term" will be mentioned a lot. This article will discuss the differences in the two forms of life insurance to help you choose what is best for you.
Term Life Insurance The best way to differentiate the two kinds of life insurance is by using the analogy of buying or renting a house. With term life insurance, you are essentially renting. You will hold the policy for a term, which could be ten, fifteen, twenty years or more. The insurance provider will charge you an annual fee to hold the policy and if the provider chooses, they can increase the fee. If the insured dies during the time when the policy is intact then the death benefit will be paid. If the policy expires then the insured receives nothing.
Whole Life Insurance With whole life insurance, the holder of the policy is essentially buying. Just like with a home, you will own this policy until you decide to sell it back to the insurance company or until the insured dies, at which time the death benefit will be paid out to the beneficiary.
The main difference with whole life insurance is that you will pay a higher monthly or annual payment and a portion of that payment will be placed into an investment account of mutual funds, while the other portion will be used to pay for the cost of insurance. In the event of a death to the insured, the total amount of the death benefit, in addition to any money held in the investment account would be paid out to the beneficiary. Because of this, the cost to hold a whole life insurance policy is much more expensive than that or term, but the reward could be greater. As always, with any financial decisions, it is best to ask your financial advisor for recommendations that are best suited to your individual requirements.
To learn more about life insurance, contact an agency like Welsh Agency Inc.Share