Whole and Term Life Insurance

[JanetRose]

Can someone explain to me in simple simple terms what is the difference between the two?

Thank you!

 

[U2_rocks]

Whole life coverage is in place until you die. Term life is in place until the expiry date of the term, even if you are still alive. If you die before the term is up though, you get the benefits.

Term life is cheaper because when the term is up none of the sum insured belongs to you unless you have a feature that accrues dividends etc. With whole life a cash value accumulates, which you'd get back if you cancelled before death. It costs more due to the cash value and the fact that the coverage period doesn't expire.

Those are the basics. But I'm not in life insurance, so don't expect any more details from me!

 

[Ronda93]

Like U2 said, whole life can have cash value. You can take loans from it and it's in force as long as you make the premium payments. In some cases, if you stop paying the premium and want to reinstate the policy, you can. I'll throw in some value judgements on the two products as well.

As an investment whole/universal life is on the bottom of my list. After you make retirement investments, some diversified taxable mutual fund purchases and emergency fund accumulation you could consider life insurance. If I had extra money in a jar, I'd still think twice about investing in life insurance. The expense of the investment side compares poorly with any mutual fund choice.

As a planning tool for anyone with obligations, term life is at the top of my list. The goal is to replace your income stream in the event of your death. Get as much term life as you can bear to afford. Get it for as long as your "obligation" (kids through college, house paid off). After you run out of reasons to ensure your income stream, drop life insurance and put money elsewhere.