Difference Between Term and Whole Life Insurance

I want to educate here not take one side or the other.There is a place for both types of life insurance; but, each has differences.Life insurance is basically life insurance when one considers the use.Life insurance is used to provide discounted dollars for an emergency death situation. In other words, you are not going to spend dollars to bury someone or pay off a mortgage due to death from personal savings or worse yet, cash flow. You are trying to use dollars that did not cost you 100% on the dollar to buy.Depending upon a variety of circumstances, to many to elucidate here, both term and whole life may work.However, there are many different forms or variations of life insurance policies.With whole life insurance, sometimes called cash value life insurance, you normally get back some of the money you spent buying the policy in the first place….i.e. “cash value” so of the cash you spent to buy the insurance is given back to you at a certain point if you don’t die and/or you can borrow the cash that has accumulated in the policy fund for whatever reasons you want. With term insurance you do not and you cannot.With term insurance you do not get back any of the premiums you paid for the insurance and consequently you have no fund to borrow fund in the policy.With both whole life and term insurance you can choose the face amount of the policy. In other words will you buy $10,000 or $100,000 of coverage or some other amount? This is usually based upon the perceived need of the policy owner.Normally, whole life is more flexible in changing amounts of a single policy but some firms offer term contracts that achieve a similar result.Many years ago the phrase “Buy term and invest the difference” was all the rage. The concept is a valid one, the concept of buying term insurance, which will almost always carry a much less expensive premium than whole life, and then taking the difference between what the whole life would have cost and “investing” it in something makes sense; many do it.The practical functional problem is “…investing in what?”Technically an “investment” is something that produces and income. Well, for the common man, such as myself, thinking of investing as to create an income would require more dollars than could be derived for the “buy term and invest the difference” idea. But for some that works.Saving money, getting the greatest value for the dollar spent many times will make the purchase of cash value, whole life insurance a better option.One’s cash flow situation, one’s budget situation and other realities will dictate many times to the wisdom of a term life or a whole life purchase.Many writers on the subject use the analogy of the difference between term and whole life from an economical perspective to be similar to the difference between owning your home and renting one.With ownership there is normally equity, now these days this analogy breaks down a bit due to the crazed economic times, I trust that you get the idea however. With renting you are not going to see a return of rent monies, but you are renting, making available a roof over you head. That is like term insurance, depending on some factors you can get a lot more term life insurance for less when compared to whole life.However with term insurance you are only buying coverage to be used upon death. If the death does not happen during the contracted length of the policy, and there are many lengths to choose from, the policy is done, all premiums have been paid; but there is nothing to show for it.Not the case for whole life, when the term is done, and most whole life policies cover most of your life, there is a return of some premiums. And the premium return is really a low interest return to you of premiums invested by the life insurance company; however, most of the time it will cover all premiums paid.Well, both term and whole life have their place. If I may, it might be better to not consider an “investment” approach when buying life insurance from a family perspective. Life insurance is to protect the earning power and financial stability of people and families it is not a get rich wealth creation took per se.It is easier to keep life insurance simple in the beginning, cover the basics with either whole life or term insurance or both; and then as you move through life and you wealth picks up think about “investing.”Life insurance is life insurance…if you’ve ever given a death benefit check to a grieving widow or widower, believe me they are not thinking about “investing” in anything….they need money just to keep going.

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