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The Differences Between Term and Whole-Life Insurance

Many people often struggle to decide which is better for them: Term Life Insurance or Whole-Life Insurance. Both policies exist to serve specific purposes. Term life insurance is simply life coverage only. When the insured person dies, the face amount of the policy is paid out to the main beneficiary. A term life policy can be bought for periods lasting between one and thirty years. Whole life insurance, on the other hand, will provide a term policy as well as investment potential. This investment could be put into things like stocks or bonds. Over time, the policy will build in cash value that the person insured can borrow against. As far as whole life insurance is concerned, the three most common types are universal, variable, and whole life policies. Both term and whole life insurance plans have a monthly payment that can be locked in. This will stay the same over the entire course of the term.

Everyone must die, but not all are insured. Do you know the difference between term and whole-life insurance?

Everyone must die, but not all are insured.

Unfortunately, most experts claim that whole life insurance can become very expensive. In this manner, besides paying for the insurance itself, a person will also be paying for the investment portion. While this may sound like the perfect place for investing money, it typically really isn’t. There are much better ways out there to invest for retirement instead of opting for this type of policy.

These policies are also often layered with fees and commissions, which can sometimes take as much as three points off a return. Along with this, many experts say that there are hidden commissions that are typically around 100% for the first year’s premium. Also, it can be very difficult to try and figure out what the return will be on an investment inside one of these policies.

For term life insurance, the premiums are often extremely cheap and affordable for those up to the age of 50 that are in great health. After the age of 50, premiums tend to rise in cost. Whole life plans often operate in the same plan but people who are in their 60’s may only be able to purchase a whole life insurance plan. It is known that most companies will not allow people over the age of 65 to have a term life policy.

Despite what has been mentioned, whole life insurance is not always a bad option to take. For instance, whole life can be utilized by wealthier individuals for their estate planning, by setting up a fund that can pay their estate taxes from any proceeds generated. This policy should still be worth checking out for people in their 40’s and 50’s that are starting to consider life insurance policies.

The only major downside with whole life policies is that the only person who can tell if the investment is a great one or not is an expert. It has been said by certain experts that whole life policies hardly give a decent return unless they are held onto for at least 20 years. Anyone that buys this type of policy should be prepared to have it for a significant amount of time. The key here is to determine what the average return may be after costs and fees have been removed. This can often be a difficult process.

For those debating between term life or whole-life insurance, and wanting to have it for over 20 years, the insurer’s finances mean everything. They should be around even after the person being insured is gone. To check on this, an insurance company’s credit worthiness can easily be looked at over the internet. It is best to go with an insurer that is rate A or better.

Anyone trying to decide between these policies needs to consider their own financial situation, how long they plan on holding the policy, and whether or not they feel like making an investment.

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