Whole Life Vs Term Life Insurance - Who Wins?

Comparing life insurance policies can be confusing, especially if you don't know the difference between the different types of cover available. So let's compare the two kinds you will see most often; whole life vs term life insurance.

When you buy term-life, you are buying life insurance and nothing else. It is just a basic policy with no extras. Term-life is not an investment. It has no cash value at all - unless you die of course. So if you pay your premiums for years you have nothing to show for it except that many companies will lock your rate for a certain number of years from when you buy the policy, or at least limit the amount of increase.

Whole-life is a totally different story. When you buy whole life insurance, you are not just buying a policy. You are buying insurance that is bundled with an investment. In other words, a portion of your premium each month is invested and earns you a cash value. If you have had a whole-life policy for many years, you may be able to cash it out for a significant amount of money.

If you think whole-life insurance is a better deal just because it has a cash value, you are sadly mistaken. In fact, it is term life insurance that is usually the better deal. The main reason is that when you buy whole life insurance, you are paying for both the cover and the investment, but you really only get one or the other.

Take a little time to compare the prices of them and you will see what I mean. The whole life insurance is significantly more expensive. Most people look at that and think that of course it is more expensive because you are getting more - cash value in addition to the life cover.

However, if you read the fine print you will find that if you cash out the whole-life policy, you will no longer be able to collect on the insurance and if you die and someone tries to collect, they cannot get the cash value. In other words, you are paying extra to get two things but you really only get one or the other.

If you buy a term life insurance policy instead, you can take the amount of money you are saving on the cover and invest it into a mutual fund. That way, you really do have both an investment and an insurance policy. The policy will cover you if you die, and chances are the mutual fund will be worth more than the cash value of the whole policy if you don't. Plus, if you die while you are still insured, your beneficiary will get both the death benefit and the mutual fund.

When comparing a term life policy to a whole life policy, you need to look at the possible outcomes for each to decide which one is the better deal for your circumstances. I can almost guarantee you that the term policy will come out on top every time.

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by Eddie Lamb

Source: Goarticles.com