There are two basic types, “whole life insurance” and “term life insurance”. The basic difference between “term” insurance and “whole life” insurance is that a term policy is life insurance coverage only. A whole life insurance policy adds an investment opportunity to the life insurance portion of the policy.
Both policies will pay to the beneficiary the amount shown on the face of the policy. A $250,000 face value whole life insurance policy and a $250,000 face value term life insurance policy will pay $250,000 at the time of death of the person named on the policy.
A term policy for $250,000 may cost the buyer as little as $25.00 per month, and sometimes less. A whole life policy may cost the buyer as much as $200.00 per month. Both policies will pay the beneficiaries $250,000 upon the death of the person named on the policy, but the whole life insurance policy may also pay money back to the policy owner at some point in the future, even while the person named on the policy is alive.
Term life only provides for this one-time final benefits payment. Whole life builds in value, and after paying into the policy for a long period of time, usually 20 years or more, it will have a value on its own, and this value will be paid to the owner before his death.
A buyer can buy a term life policy for periods of one year to 30 years. A whole life policy can typically go longer than 30 years, and offers a “return on investment” option.
The investments made by the life insurance company from whom the buyer purchases the whole life policy will decide how to invest the money paid by the buyer. This could be handled in many ways. The investment could be in bonds, investments in the money-market, or stocks. A whole life insurance policy also builds cash value that the owner can borrow against.
A whole life insurance policy has a higher initial cost than a term life insurance policy because with whole life the buyer is paying for more than policy that will pay the beneficiaries at the time of the owner’s death. A whole life insurance policy is an investment, in addition to being a life insurance policy. The additional price for that investment portion of the policy may or may not be a good deal, and there are many factors involved, to include the age of the person who is to be insured. Insurance agents often refer to whole life insurance policies as retirement plans, emphasizing the "forced savings" being made for the premiums each month "for retirement."
“What do I wish for a life insurance policy to do?” If the answer to that is: “Provide for my family or others in the event of my death.”, and that is the primary, or only, reason for buying a life insurance policy then the right policy for you is probably going to be “Term Life” policy. But, whole life insurance fulfills the needs of many buyers.
Premiums for term life are really pretty cheap for people in good health up to about age 50. After that age, premiums start to get progressively more expensive. And, that is the same for whole life insurance policies too, although people who need coverage starting in their 60’s and beyond may have no alternative but to buy whole life. Most life insurance companies will not sell term policies to people over age 65.
If you have been paying into a whole life policy for 10 years or more now, and after reading this you are thinking, “Should I get out of this and get a cheap term policy." Maybe the best answer is not to “get out” of that higher priced policy for a cheap term life policy, but to buy an additional “cheap” term life policy for a lesser face value. If the buyer is still below the age of 40 then a term life policy can still be purchased for a very reasonable cost.
Before you buy either policy you should discuss this with a life insurance broker. The Chinese American Restaurant Association (CA-RA) has identified insurance partners that have relationships with companies to be able to provide CA-RA members with the best insurance policies, at the lowest possible price. These CA-RA partner brokers are available to answer all of your questions so you can decide on which type of policy is best for you.
If you do not know what is best for you, and you are a member of The “Chinese American Restaurant Association” click on the life insurance button on the member page, answer a few basic questions and an agent will call you on your schedule.
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