Term Life Insurance vs Whole of Life Insurance
When buying life insurance its vital you get the right policy for your needs. With a plethora of web sites offering discount life insurance, it’s often easy to end up with a policy that is not suited to your unique needs and circumstances.
Many people need clarification regarding the various types of life insurance, and which is best for them.
Term Life Insurance:
Term life insurance is a bit like leasing a car. You pay cover for a predefined term, and are covered for that term. However, at the end of the term, whether for example its 15 years or 30 years the deal is done and you simply walk away.
Term life insurance only offers protection for the duration of the mortgage, and is normally of no value when your mortgage is paid off.
However, term insurance is cheap, and the cost can even reduce over time. There are five main forms of term life insurance, and these are as follows:
* The first is known as level term cover, and it’s the most common type. With this form of policy the premium costs are locked in for as long as you hold the policy. In other words, you will pay the same amount throughout the entire term of the policy.Unfortunately, it means that as time goes by you could end up paying more for your life cover. However, the nice thing is that you get the benefit of paying at today’s rates. However, bear in mind that over time these rates could fall instead of rise.
* The next form of term life insurance is escalating term cover. This policy can be more expensive, as you pay an increasing amount each year. However, the lump sum payable at death also increases. These are normally low cost policies, and are best suited to younger people.
* The third type is known as decreasing term insurance. In this case your monthly payments will stay the same, although the amount of cover you receive will reduce each year.
* The forth type of term life insurance is what’s known as increasing term insurance. Here the lump sum payable at death increases each year. This increase in value of the policy is made up by increasing the premiums periodically over the years.
* Finally, convertible term insurance is a type of term life cover that can be converted into an investment/insurance policy in the future. Normally, the value of such investments will be based on your health, at the time you bought the term insurance policy.
Whole of Life Insurance & it’s Advantages:
A whole of life policy can be more complicated and more expensive than term life insurance. However, a whole of life insurance policy covers you up until the time of your death, providing that you keep paying your premiums!. The advantage of these types of policy is that your family could receive a considerable lump sum when you die.
This type of policy is more expensive and complicated than term life policies. The investment you make earns some interest each year. So, providing your investment grows, your annual premiums can actually reduce over time. Also, there may come a time when the interest produced can cover all your future premiums, and as a result you may have no more premiums to pay on your policy.
However, understand that it is possible that the final value of a whole of life insurance policy may not be the same as the amount of money invested in it over the years.
Summary:
When it comes to the decision of whether to choose a term life policy, or whole of life insurance cover, the ultimate decision must be guided by your individual needs.
Term life policies are the simplest and cheapest to set up, and cover you only for as long as you need them.
However, you may prefer a policy that offers a growing nest egg, that pays out while you are still around to enjoy it!
Both types have their advantages and disadvantages, and careful consideration and advice from a competent insurance adviser is vitally important.
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