Life Insurance – Whole and Term
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There are two major types of life insurance. Whole life is designed to last through the insured’s entire life span. It may have additional benefits beyond the payout resulting from the death of the one covered. For comparison, term life coverage will cease at a certain point in the insured’s life. At that point, the insurer’s underwriters won’t accept additional premium payments and the previously insured person and his beneficiaries won’t receive a death benefit when he or she passes away. Term insurance also does not have a cash value benefit and only pays out if the insured makes his or her regular premium payments.
Whole life is superior in that it both offers monetary support for the beneficiaries of the insured and has the added bonus of gaining cash value over time for the individual who is insured. It turns out to be an instrument that aids one in financial planning and is another arrow in the quiver of investment for the policy holder that can come in very handy in times of financial emergency. Whole life remains in force for as long as the insured keeps up his or her payments of the premium. Upon the death of the policy holder, the beneficiaries then receive the payment of the death benefit.
How life policies work
A whole life policy guarantees an agreed upon amount of payout at the end of life. The insured individual makes ongoing premium payments that normally remain at a fixed rate. Conversely, with term insurance the premium rates can increase as the policy holder advances in age. With whole life rates won’t increase or be cancelled in the event of illness.
Types and Payouts
With whole life, the insured person has the option of keeping his or her full policy active or there is the possibility to take cash out of the policy in times of need. If the policy holder makes the decision to fully withdraw all money, he or she then retains the amount received and the policy becomes no longer active.
The policy holder can also choose to just withdraw any interest accrued with the policy for a certain period. Another option is for the insured to borrow money from the whole life policy. In this case, as the policy remains active, the beneficiaries receive a commensurate reduction in the benefits in the event of the insured’s death, at least until he or she repays the interest or borrowed money back to the policy.
With term life, only the beneficiaries receive a payout. Again, the whole life policy is markedly different in that the policy holder can fully cash out, withdraw any accrued interest, or even take out a loan while he or she is alive. In a word, whole life offers flexibility.