Rome visit, June 2008 - 57

One of the most common debates insurance buyers get into is whether to purchase a term life or a whole life insurance. This is actually an important thing to ponder on as purchasing the wrong one can lead to financial harm.

So what are the pros and cons between these two? More importantly, which is better for your specific needs?

Term Life Insurance

Policies on term life insurance cover death benefits only. Hence, if you happen to die before the policy term, then that means you win. However, if you or any of your family members signed up live past through the duration of the policy, then you will be getting nothing back.

Term life insurances are available at 10- to 20-year duration. Buyers are often given the option to either choose a premium that increases annually or one that has fixed amount for certain number of years.

If you are planning to keep your insurance just within 10-20 years, then a term life insurance would be the more viable option for you. However, if you plan to keep one with a longer duration, then go for whole life insurance.

Whole Life Insurance

Whole life insurance policies, on the other hand, offer not just death benefits but also savings accounts. If holders live past the policy duration, they will get to retrieve at least some or, sometimes, even more than what they have spent for premium. The amount can be retrieved either by borrowing against the policy or cashing it in.

But as expected, whole life insurances come much more expensive than the term premium. This is mainly because with a whole life insurance, you will not only be paying for the cost of the insurance but will also be charged for the savings program. But the longer the duration of your policy, the higher cash value you will be getting in the end.

Even so, life insurance should not be bought solely as investments. After all, a fraction of the premium will have already been used to purchase death-benefit coverage as well as to cover expenses on sales commissions.

photo by: Ed Yourdon