Term Insurance Vs Whole Life Insurance?
Posted September 21, 2009 – 4:44 am in: term life insurance1. What is the difference between a term insurance and whole life insurance policy? Which policy is suitable for what kind of people?
2. What are the “exclusions” for term insurance policies i.e. death because of “some” reasons (for e.g. suicide) that does not entitle for insured amount? What are other such reasons?
3. Does term insurance cover accidental death, death because of terrorist strike or natural calamities?
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Whole life insurance is a form of life insurance which has a guaranteed level death benefit until death or age 100, which ever comes first. It also builds a guaranteed cash value which will equal the face amount of the policy at age 100. So if you have coverage of $100,000 and you are still alive at age 100, the insurance company will void your life insurance policy and pay you $100,000.
Premiums remain level and there are 3 ways you can pay your premiums. The most common way is called “Straight Life” or “Continuous Premium Whole Life.” This is where you premiums continuously until you die or when you reach age 100.
The second way is called “Limited Pay.” This is where you pay a higher amount of premiums than Straight Life for a certain amount of time. Examples of this are “20-Pay Life” or “Life Paid at 60.” With “20-Pay Life” you pay your premiums for 20 years. “Life paid at 60″ means you pay your premiums until you reach 60 years old. The shorter the payment period, the higher the premiums and vice versa.
The third way is called “Single Premium Whole Life.” This is where you pay one lump of premium and never have to pay it again.
As I mentioned earlier, Whole life insurance builds cash value. You can borrow it anytime and use it for any purpose. The question is “what is this borrowing part all about?” Isn’t the savings suppose to be your money? The answer is no. The premiums you pay belongs to the insurance company.
If you want to take money out from your life insurance, you have to borrow it. The insurance company will charge you a loan interest of anywhere between 5-8%. But in the first 2 years of the policy, no cash value is accumulated. So there’s nothing you can borrow during that time. After the first 2 years, you are guaranteed an interest rate between 1-3%. When you borrow money from the cash value, your death benefit is reduced by the amount you borrowed, but the premiums remain the same. Interest charged on the amount you borrowed does not go back into your cash value. It goes directly to the insurance company.
If you die someday, the insurance company keeps your cash value and pays the death benefit only.
If someday, you decide you want to cancel your whole life policy, you will get most of your cash value. When you cancel your life policy, the insurance company may charge you a surrender charge on your cash value. If you borrowed money from your cash value, it is important that you pay this loan back before canceling the policy. Failure to do so will result in income tax on the loan amount.
In summary, here are the pros and cons of whole life insurance:
PROS
1) You are guaranteed coverage until you die or reach age 100, whichever is first.
2) Premiums remain level.
3) It builds cash value.
CONS
1) It builds cash value, which makes this type of life policy very expensive.
2) Cash value grows at a low rate of return
3) If you want to use the cash value, you have to borrow it and pay loan interest of 5-8%
4) If you die, the insurance company keeps your cash value.
Term insurance is designed to provide death protection for a definite and limited period of time such as One Year Term, Five Year Term, 30 year Term, or Term to 65. If the insured dies during the term, the policy matures and the insurance company pays the face amount of the policy to the beneficiary. If the insured doesn’t die during the term, the policy expires.
The second most important characteristic of Term insurance is that it is pure insurance. You pay premiums only for the coverage. Since there are no forced savings or cash value attached to Term insurance, it is designed to provide the greatest possible protection for the lowest possible cost. Therefore, the two key points to remember about Term insurance are that if offers (1) protection only for a (2) a specified period of time.
One of the most widely marketed forms of Term insurance is Annually Renewable Term (ART). The insurance company grants the insured the right to renew the policy each year to a stated date or age. The cost to renew the policy goes up each year because the rates are based on the insured’s attained or current age.
The increasing in premiums can present a real problem for the insuring public. One Term product that provides a partial solution to the rising costs is Level Premium Term. With a policy of l0ng duration, the payment may be leveled out over the life of the policy to create Level Premium Term. The cost of Level Premium Term is calculated by price of the early years by the price of the later years. So in the beginning, you are making an overpayment of what the actual cost of insurance is. But in the later years, you are making an underpayment of what the actual cost of the insurance is. Why? Because the cost to insure someone is young is low compare to the cost of insuring someone who is old.
Term insurance, then, in any of its many forms, is the most affordable protection available for teh premium
1.term insurance policies are endowment type policies ie if any thing happen to the insured person during the insured term then only sum assured will become payable to nominee under this type of term insurance policies premiums are to be paid during certain term and in cast nothing adverse ie particularly death not accures and the life assured survives at the end of the term NOTHING IS PAYABLE
2.where as whole life policies are as it names says it is whole life policy that means premium is to be paid during certail limited period or till some specified age ,after that period premium payment will be stopped BUT the sum assured will be payable TO THE NOMINEE ONLY AFTER THE DEATH OF THE INSURED PERSON and nothing payable at the premium ceasing age/trm
3.sucide clause is applicable for 1st year ONLY in LIC then it will not be applicable
4.LIC (MIND WELL LIC LIC AND ONLY LIC ) covers accidental death under term insurance policies ,and ONLY LIC covers death risk due to terrorist attack or natural calamaties
5 for example natural calamaties like 26th january kutch earth quake sunami and terrorist cases recently unfortunately happend to india ONLY LIC had settled all the CLAIMSin such cases not only settled the claims LIC HAD PAID DOUBLE THE SUM ASSURED AS THE SITUATIONS MENTIONED LIC BELIEVES THESE AS AN ACCIDENT HENCE PAID DOUBLE where as all other private players REFUSED THE CLAIMS as they dont cover death risk due to TERRORIST ATTACK OR NATURAL CALAMATIES
HENCE I SUGGEST IF YOU THINK FOR LIFE INSURANCE TRUST ONLY LIC IN INDIA
There are some really good answers to insurance and other kinds of personal finance questions at http://www.smartmoney.com
Term life insurance is less expensive, whereas whole life insurance includes a forced savings component which makes it more expensive, but gives it some value in the savings account. Most honest financial advisors will point out that you could do much better by buying the less expensive term life insurance you need, then putting the difference into a better investment vehicle.
Many insurance policies pay for death by suicide if the policy was in effect for a couple of years. The rates are generally higher for those being treated for depression, for this reason.
Always keep in mind that all answerers are here not just for answering, but many has commercial interest too. So analyse the answers.
1. Term insurance is the pure form of insurance, in which you pay the premium to remain insured. You do not invest, just pay the mortality charge at a constant average rate. As you just pay to get insurance , you get nothing. This is very cheap.
Whole life & any other product contains a saving part. You save over the period (saving part is premium – mortality charge – commission) & it is given to your nominee. nothing else. there is no shortcut of getting anything, you just get what you save.
2. In every type of insurance, suicide in first year is not included. Death due to adventure activity is also not included.
3. It covers all type of deaths except suicide in first year & death due to adventure activity. Read the product document, policy application form & policy document carefully.
1. Term is for a ‘term’ of time. 1-30 years in just about any increment you want. Whole life will last your whole life. You just need to decide how long you need coverage for. But, if you want coverage forever then consider getting a MUCH cheaper universal life policy with a guaranteed premium to age 100. Some people call it to age 100 term because that’s essentially what it is.
2. The exclusions for life insurance are the same no matter the type.
3. They all cover the same causes of death as well (when talking about individual policies – group is different)
I like whole life because when u get term insurance u will died before age 60 u will get money for term insurance…and after 60 u will not get nothing money…
when u take Whole life insurance u will at 60 age your death benefit more than 10 lac and 99yrs policy….contact Max New York Life Insurance Company’s Agent Advisor… think and take Whole life insurence
And if u had accident u not get term insurance plan.