Life Insurance Blog | Efinancial

Term Life Insurance vs Whole - Which is Right for You?

Term life insurance or permanent life insurance? That is the first question anyone considering life insurance must answer.

First of all, the basic differences:

Term policies are written for a specified number of years, such as 10 year, 15 year, 20 year and 30 years. The policy will terminate after the specified coverage period. A term policy only pays out money upon the death of the insured, at which time the named beneficiary receives the face value of the policy. If the insured outlives their policy, they will want to purchase a new term policy. This will require them to go through a new underwriting process and their rates and / or approval may change since the time they originally applied for coverage.

Whole life or permanent insurance covers the named insured for his or her lifetime, not just a specified number of years, and combines a life insurance element with a cash value element. Each time a premium is paid, a portion goes to pay for the insurance coverage and a portion goes to an investment element. Cash value builds up over time and can be borrowed for college funding or other needs.

Whole life insurance comes in three main forms:

1. Whole Life – builds cash value – expensive – difficult to determine actual cost of insurance – no choice of investments – premiums remain constant.
2. Universal Life – builds cash value – usually more moderately priced – cost of insurance is disclosed – can be a choice of investments – premiums remain constant.
3. Variable Universal Life – expensive – cost of insurance usually not disclosed – wide variety of investments – premiums can change.

Let’s take an example of two brothers, Tom and David - both age 35. Tom is a bachelor who lives in the city. He rents a suite in a high rise apartment. He has no long term debt, and has $200,000 invested in a diversified portfolio. Tom’s college education was paid for by a sports scholarship.

David is married and has two children, ages 5 and 6. David and his wife Cheryl have a $300,000 mortgage on their family home and owe an additional $20,000 on their car. They are saving money in a college 529 plan to pay for future college costs and have $10,000 in a diversified portfolio.

The insurance needs for Tom and David are quite different.

Even though Tom has no dependents, he may choose to buy term life insurance with a small face value and name a beneficiary. If the time comes, the beneficiary could pay funeral costs and any outstanding debt Tom may leave. If Tom outlives his policy, he can purchase a new one. If Tom’s needs change, he may also be able to convert his term policy to a whole life policy.

Although term life insurance can also fit David's needs, he may decide to purchase permanent insurance. Since David is comfortable with investing, a Variable Universal Life policy might be the right choice. He can build cash value and choose how he wants the money invested. David should first protect his family and assets and then invest any discretionary money in his portfolio.

To get a Term Life Insurance Quote or Research how to Buy Life Insurance Online visit Efinancial.com