Difference Between Term And Whole Life

How Do Term Life And Whole Life Insurance Differ?

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What is the difference between term and whole life insurance? Many life insurance buyers want an answer to this question. I will attempt to give as simple and straightforward an answer as is possible. Let us do this by defining each policy.

• Term Life Insurance

  If you want life insurance for a limited period of time you need term life insurance. You can buy a policy for 5 years, 10 years, 15 years, 20 years, 25 years or 30 years. At the end of each period of time that is the end of the policy.

  If you die within the specified term the face amount of the policy is paid to your loved ones. If you don't die within this period the policy simply ends. Term insurance is much cheaper than whole life simply because the life insurance company is at risk for a much shorter period of time.

  You may convert your term policy to permanent insurance within specified periods of time. For example, you may convert your 20 year term policy within 12 years of the date of purchase of the policy. This is just an example. The time period varies with each life insurance company.

• Whole Life Insurance

  As the name implies whole life insurance may be kept for the rest of your life. The premiums as a result are much higher than term life premiums. There is one thing about term policies that helps compensate in some way for the higher premiums.

  Because the premiums are so much higher, and because you didn't die early, the life insurance company returns part of your premiums in the form of cash values . These cash values applied to your policy each year accumulate at a guaranteed rate.

  In addition, you may earn a dividend each year on top of your cash value. Dividends are not guaranteed, however.