How to choose between Term and Whole Life Insurance
Policies are created to suit different life-styles and are supposed to make life easier. Well, they do if you start off with understanding the main two types, generally known as term insurance and whole life insurance.
Term Life Insurance
This is designed to give you or your dependents a specific sum of money if a specific event occurs – death or terminal illness – within a specified time, which can be anything from one to thirty or more years. You decide how long you want the cover to last. The up side is that this is usually the cheapest kind of life insurance cover you can choose. The down side is that if you are still alive and well at the end of your agreed term, you don't see any money back.
Whole Life Insurance
You can expect this type of cover to be more expensive and is often referred to as an assurance policy because sooner or later you will get a payback. In the event of you becoming terminally ill or dying, the people you care about will receive the amount of money due at that time. But if your circumstances should change, you may have the option of cashing in your policy and getting a lump sum. This will not reflect how much money you have invested but could boost you financially if you hit a rocky spot. This is one of the reasons why life insurance counts as a financial asset. Another advantage of this is that holding a life insurance plan will improve your credit rating in case you need a home or business loan or medical insurance. Although, in principle, you take out whole life insurance for the rest of your life, you don't necessarily end up paying premiums for the rest your life. Most policies will enable you to cease payments at a pre-arranged date, such as retirement, and continue to be fully covered.
Choosing a Life Insurance Policy
First consider who or what needs your support (yes, even pets may deserve a thought). Few people can afford to cover every eventuality so work from the premise of the most important first and then anything else is a plus. Once you have a basic idea in your head, start looking at the options available. Since you are already on the web, you can start sourcing information right now. Once you’ve decided whether term or whole life insurance suits you better, you can focus on the question of what you want your policy to cover. Most people think of the cost of their funeral, mortgage or rent, outstanding debts, family living costs or even the college and university expenses of their children. If you opt for critical illness cover in addition to either your whole life or term life insurance, the insurance company will pay you an advance should you be diagnosed with one of the critical illnesses defined in your policy. But don't be afraid to take your time and mull over exactly what you want and what you can afford. It's your life, your money, your decision.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
Generally thought of as being interchangeable with insurance but isn’t. Assurance is cover for events that WILL happen but at an unspecified point in the future (such as retirement and death) and insurance covers events that MAY happen (such as fire, theft and accidents). Therefore you buy life assurance (you will die, but don’t know when) and car insurance (you may have an accident). Assurance policies are for a fixed term, with a fixed payout, and unlike life insurance have an investment aspect: as a life assurance policy increases in value, the bonuses attached to it build up. If you die during the fixed term, the policy pays out the sum assured. However, if you survive to the end of the policy, you then get the annual bonuses plus a terminal bonus.