Which Policy Is Best?

Jun 26 2011

Which Policy Is Best?

Posted by Lachlan Bethel in Life Insurance

Term versus whole life insurance. Why do some people create controversy over subjects where none really exists? There seems to be one that the life insurance industry just cannot shake…term versus whole life insurance. If you take the time to examine the two policies you would realize that they simply are two different things. You should not try to compare one with the other. There are advantages to owning term life insurance as well as disadvantages. The same goes for whole life or any permanent, non term, type of life insurance.

Term life insurance really was designed to be used as a stepping stone to the eventual purchase of whole life insurance. Whole life insurance was intended to be kept for as long as the owner lives. On occasion people have combined both policies with some real gratifying results. There really should be no term versus whole life insurance controversy.

Advantage To Owning Term Life Insurance.

It may seem that one of the greatest advantages to owning term insurance is its low premium. In some cases this is really so but in others the premium for term insurance increases every year and as a result the owner drops the policy because the costs get too high…even above the level of whole life insurance. Such is the case of the yearly renewable term policy…

Most term policies do, however, have a level premium for the duration of the policy. The premium for the longer term policies, like the 20 year term policies , the 25 year term policies and the 30 year term policies even though they are less expensive than whole life they are not significantly less. None the less term insurance is way ahead initially in our term versus whole life insurance comparison as far as low premiums are concerned.

If your need for life insurance is temporary then temporary term may be the best policy for you.

Disadvantages Of Owning Term Life Insurance.

The main problem with term life insurance is that the owner has to die to win. This might on the onset sound like an absolutely ridiculous statement but the fact is that this is true. If you bear in mind that life insurance whether term or whole life was created to protect your family in the event of your death that might not sound as bad as it may initially had. If you, however, compared term versus whole life insurance there is an advantage to owning whole life in this area.

Another point to remember is that term insurance policies last for a specific period of time and when that period comes to an end so does your policy. The life insurance companies have thought about this and have as a result built into most term policies a conversion privilege. This allows the owner of the policy to convert to a permanent policy within a specific period of years. Many people see it as the intelligent thing to do in the early years of the policy, when they can afford it, as if they wait too long the period for conversion may run out and they would be left without any life insurance at all.

You may feel that you can go buy another policy at that time. That is true but you should remember that you will be older at that time and likely in a less healthy condition. Your application may be declined by the insurance company at that time.

Advantages Of Owning Whole Life Insurance.

As the name implies you keep whole life insurance for your entire life. As long as you pay your premiums you can keep your policy. It can never be taken away from you. In this area you can see that as far as term versus whole life insurance goes whole life wins hands down.

Even though whole life insurance is a little more pricey than term policies one should consider what you get for your dollar. Participating whole life insurance policies qualify for dividends if the life insurance company performs well. Dividends are not guaranteed. Dividends can be used to reduce the cost of your whole life policy…

If you were to seriously think about it and check the past performance of some policies you would notice that the cost of the whole life policy can be much less than the initial cost projected by the company. In some cases even less than the cost of a 20 year or 30 year term policy. Whole life again wins in a term versus whole life insurance comparison.

Whole life insurance also has cash values …a part of which is guaranteed. By contractual agreement there is even a minimum guaranteed interest rate. You can use this money in any way you want. You can take a loan from the company at any time and you do not need to tell them why you need it…

You are charged a nominal interest rate on repayment. You should also keep in mind that if the loan is not repaid the death benefit will be reduced by that amount plus whatever interest is due at that time. Since term insurance has no cash value the choice would have to be whole life if you were looking for cash during your lifetime. Term versus whole life insurance…there really is no comparison in this area.

Disadvantages of owning Whole Life Insurance

If you examine all the policies incorporate you will soon realize that the only disadvantage to whole life insurance is the higher cost in the initial years. This is really a temporary disadvantage in most cases because if the life insurance company performs well. If they keep their costs down and if they do well with their investments the dividend earned will eventually offset the higher premium cost of whole life insurance.

Term insurance should be purchased initially if you have a need for a large amount of life insurance as your premium payment will be much lower. You should keep in mind the conversion privilege and convert to whole life or another type of permanent policy when able…like the universal life policy. You could also consider variable universal life insurance or the variable life insurance policy which was designed to combine life insurance with high yield investments.

Some people combine whole life insurance with a term policy rider in order to provide a larger death benefit and still have a cash value policy. Term versus whole life insurance…each type has it’s purpose.

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