Which is the better option – whole life or term life insurance?
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Asked January 31, 2014
There is no easy distinction of better or worse when you are comparing whole and term life policies at face value. The two types of policies cover your life for the agreed face value for the same perils, and often include the same clauses and exclusions. Where one type is better than the other is in your desired goal for the policy, and that has to be decided on a case-by-case basis, or you can have a mixture of life insurance policies.
Whole life insurance is purchased for your entire life and remains in effect as long as you make your premium payments, regardless of how your health deteriorates after you buy the policy. The primary advantage of most whole life policies is that they provide the policy owner with a tax-deferred cash value that can be a useful financial tool. The owner and insured do not have to be the same person, but the owner will always control the policy.
The most affordable type of life insurance is a special type of permanent life policy known as final expense insurance. This type of coverage is usually purchased in conjunction with a funeral home which will be the named beneficiary on the policy. After you pass away, the policy will pay directly to the funeral home, and the insurance company will handle your funeral and interment. This type of policy does not pay out other beneficiaries, making it very limited in usefulness.
Term life policies are purchased for specific number of years. At the end of the term, the policies have to be converted to a whole life policy at an additional cost, forfeited, or extended by another specific term. Each time the policy is converted, you will have to take another medical exam and the rates will be recalculated to meet your current age and health. Converting or extending term life policies can become expensive. Term life policies are best used for objectives that have a definite range of need, such as putting aside money for college tuition in case you die, or paying off the mortgage of a home.
Answered January 31, 2014 by Anonymous