How to Determine If Term Or Whole Life Insurance is a Good Fit

By: Adam Hefner

You are searching for life insurance to buy, so you might already have come across whole life insurance and term life insurance. It is important not to base your decision on what someone told you. Get to know the definitions of "whole" and "term" before you make a decision on which one to get. Find out about the advantages and disadvantages of both (and how you will be affected by them).

First, there is term insurance. This type protects an individual for a period to thirty years. It is considered to be less of a cost than whole life insurance. The insured can get protection from yearly renewable premiums and level-term premiums. Level-term premiums stay fixed during the period of the policy. Yearly renewable premiums increase with age of the insured.

Second, there is whole insurance. This combines term with an investment element. The two parts of whole life insurance are: the mortality cost, covering the expense of the insurance policy, and the investment element, which can provide savings and accrues interest. When a person ages, the mortality cost rises as the investment element lowers. You may not be able to get the amount you expect if you turn your policy in for money, because the value can appear different from what it is. When the market changes, the policy value changes, not always keeping in line with what is.

Last, term life insurance may be your best choice if you have limited finances, and need a great policy that fits in your budget. It is low cost and will not give you more protection than is necessary. If you do have the means to buy whole life, you can use it as a means to plan your estate. Proceeds can be applied to estate taxes, allowing your family to avoid a battle with the government.

Whole life insurance is very costly. If your resources are limited, you might not be able to acquire all the insurance protection you need.

The wealthy occasionally use whole life policies to plan an estate. An insurance trust is set up, and upon death, transfers the earnings of the policy to the estate taxes. This helps their family to avoid the great cost of determining the outcome of the estate with the government.