Let’s start with humor. “I want my relatives really to get upset when I die, so no insurance, please” – this phrase belong to the insuring person in USA. In general the area of insurance is full of various situations – humorous or sad. The other macho claimed for the coverage when he got some traumas while he admired a beautiful woman and didn’t notice a car.
There are a lot of legends about the most interesting cases of insurance. Parts of the body, special events, voices or cigars – it seems that everything can be insured and everything can be covered.
In fact, it is not. Famous people get fancy policies and write about it in their blogs. But if an average American comes to an office and asks to insure his finger or the snowy weather on Christmas – probably, he will be refused. Agents of insurance companies are not lady’s men or adventurers. They are businessmen and the deal that you make must be profitable for them too, not only for the clients.
If we speak about life insurance – you can win or lose whether you get a term or a whole life policy. So, what is the difference between whole and term life insurance and what is better to choose?
What is the Difference between Whole and Term Life Insurance?
When you have term life insurance, you are insured for 5 years (or more). Sometimes it is bought to some special event in your life, like wedding or childbirth. When the occasion that was described in your contract occurs, your coverage is waiting for you. The time for this occasion to happen is limited. Thus, you insure your wedding for the next two years. You can receive some financial “present” to this great day. If not – you lose your money. It is the main idea of any insurance policy. You insure the situation that can happen or not. The same do many other people. Then just several of them get the coverage – all the others stay unpaid. But premiums are paid by any of them. This difference makes from an average insurance agent a millionaire.
That’s why term life insurance is so popular. You insure yourself from death during a certain period. Insurance companies don’t sell the policies to old people – the risk of their death is too high. They hope that you won’t die during this period – thus they will get your premiums and give you just a small amount in return. It is the main difference between term and whole life insurance policies. Whole life insurance guarantees payments in the case of death – any time it comes. So your relatives for sure will get the coverage one day. The client is protected by the insurance but he is not protected from a loss that he can have because of a term life insurance.
The other point follows from the previous one. If the whole life insurance policy guarantees payments, then the amount, paid by you every month, will be much bigger. Term life insurance has extremely low rates because the necessity to pay the coverage may occur or not. In the second situation it will be covered one day for sure, so the rates are high. But difference between term and whole life insurance policies includes one more point. Whole life insurance guarantees such payments like mortgage, loan for a car etc. When we speak about term life insurance, it deals only with life of the person or an occasion of some remarkable event in his life. What insurance policy is better – it is worth discussing.
Term or Whole Life Insurance – Who Wins?
The main task of any explorer is to find the necessary facts. And the conclusions from these facts are usually made by the users of this information. We will do the same and pay attention of the readers to the advantages and disadvantages of every policy. It will give an opportunity to any ready to tell, what is better, term or whole life insurance.
Whole life insurance is actually an investment. You leave your money at your insurance agent and he promises to give it back on the day of your death. As you will be dead, you won’t use that money – your relatives will. Do you remember the joke, which was written at the very beginning of this article? Are you sure, that you relatives will be really upset when you die one day? In fact, this point becomes sometimes a reason of different “homemade” crimes, when some lazy relatives of the insurer think that it is better to help their rich uncle or grandfather to meet his last day. In case of term life insurance it can never happen.
Besides, whole life insurance is extremely expensive. It is easy to understand. The bargain between term life insurer and the insurance company is reconsidered every several years. Thus, if inflation takes place or if the state of health of the insurer becomes worse, these changes are marked in the policy and the rates are changed. But whole life insurance policy can’t be reconsidered. That’s why the rates are extremely high from the very beginning.
In fact paying premiums is almost the same as if you invest some money to the market. Actually, the same any insurance company does. It invests your money and is able to return them to you one day. The only thing that differs whole life insurance from the commonplace investment is the guarantee that you get.
So it is quite difficult to say, who wins. In fact, it is very often the question of your nature and inner world. If you are an adventurer by nature, likes risks and lottery and dreams to get jack pot one day, term life insurance is for you. You can lose the most part of your coverage, but in case of a sudden disease (for much lower rates) you can claim for the whole coverage.
On the contrary, if you are a philosopher and prefer guarantees to risk, whole life insurance policy is for you. It is much more solid, serious and stable.
If you hesitate and can’t make a decision, you can demand for such a service as convertible policy. The client gets term life policy, and when its expiry date is close, it can be changed into the whole life policy. Usually he is asked to pass some medical tests that show the level of his health, and pay some more money in addition.
As you see, there are a lot of variants, just take some time to study them all.