Whole or Life Insurance

The primary difference between term and whole life insurance is this:  A term policy covers life only.  When the insured dies, it will then pay only the face amount to the beneficiary the insured named on the policy.  This insurance may be purchased for one year up to 30 years.

Whole life insurance couples a term policy with an investment component.  This investment can be:  bonds, money, market instruments, or stocks.  The policy expands its cash value that you can then borrow against.  The three most well-known types of whole life insurance are:  traditional whole life, universal, and variable.  With either policy, you can lock in the same monthly payment over the duration of the policy.

Whole life insurance is not cheap!  You’re paying not only for the insurance, itself, but for the investment portion as well.  That extended cost may be well worth it, if it is a sound investment method.  But, unfortunately, they aren’t.  These policies are called retirement plans by insurance agents.  The savings are forced as the premiums are forked over each month for retirement.

There are numerous other ways to save for retirement.  These policies incur high fees and commissions, which take as much as three percentage points away from the yearly return.

The worst thing is that there is no way to tell what the return on the investment is going to be, or how much you will pay toward the insurance and how much toward the investment.  So, in reality, you are clueless!

Premiums for term insurance are inexpensive for those who are in good health and have not yet reached 50.  When you are over the hill, and have past the age of 50, things get more costly.  Both policies are the same in this facet.  Many who need coverage starting in their 60’s have no other method than that of buying whole life.  If you are over 65, you will realize that many companies refuse to sell term policies to you.

Looking for whole life coverage or term policy that you plan to keep 20 or 30 years?  Know that the financial soundness of the insurer becomes a major concern.  You want some certainty the company will be here when you have passed away.  For insurance companies, such as Standard and Poor’s rate claims-paying ability.

Thankfully, there is information on credit worthiness of insurance companies and it is easily obtained.  The Internet will provide inexpensive reports.  You may also want to contact the insurance company and inquire about its ratings, but it is always best to get the information yourself.  Always look for someone who has an A or AAA rating as an insurer.