Life Insurance Policy Information: Term Life Versus Whole Life

The need of buying insurance policies depends on the personal situation of an individual including his family responsibilities and other financial obligations. A first time life insurance policy buyer may get overwhelmed by the varied types of the life insurance policies. The questions that a first time policy buyer may face are whether he needs a life insurance policy at all, even if he needs one, what will be the ideal amount of policy and most importantly what type will be most suitable for him. This sparks off the debate on the choice between whole life insurance and term life insurance. Both of them have their respective merits and demerits and their choice depends on the financial position and requirement of an individual.

To begin with, the whole life insurance policies are the costlier choice between the two. But in this more traditional form of life insurance policy, you get both the death benefit and cash value and usually, death benefit and premium over the entire span remains the same. This is a policy that provides you an insurance cover throughout the entire period of your lifetime. Through out the entire period of the life insurance policy, you have to pay the same amount of premium and this remains even same till the event of death.

The biggest advantage with the whole life is that the life insurance policy remains effective even after all the premiums have been paid and continues as long as the policyholder is alive. Another advantage with regard to the whole life insurance is it builds up a cash value for you. This value is generated by the insurance company's investment of your premium. A part of the income of the insurance company from investment is returned to you in form of the cash value return. However, the policyholders have no say over how and where the premiums are invested by the insurance company. Nevertheless, the policyholders enjoy tax benefits with regard to cash value. You can also borrow a certain amount against your cash value build up until you withdraw the life insurance policy.

You will find a few categories in whole life insurance. You can choose from mainly three types; traditional, interest-sensitive, and single-premium.

With Traditional type, you have the guarantee of getting back at least a minimum sum as your cash value build up.

In Interest-sensitive whole life policies your cash- back is determined on a variable rate. It has its advantages and disadvantages. While on the one hand you may get an increased death benefit without an increase in the premium, when economy is booming, on the other hand, you may get less cash return, if the economy lacks growth. Single-premium policies are targeted to higher income group who are capable of buying an insurance policy for one and all. It also ensures you a cash return and the returns are tax deterred like the other whole life alternatives.

So far as the term insurance is concerned, it provides a death benefit without returning any cash value. However, it is the one of the most recommended low cost life insurance policy option that takes good care of reasonable allocation of your income. It is meant to cover the beneficiaries in the event of death of the policyholder. These term policies are generally stretched over a shot span of time or term, say three, five or seven years. A particular amount of premium has to be paid during this term period. In the event of death of the policyholder during the term period, the beneficiaries receive a death benefit. The premiums of the term insurances vary with the age and health of the policyholder. Term life insurance premiums are especially low for the young and healthy policyholders.

To summarize the whole thing, term insurance policies are strongly recommended for those, at the beginning of their life, whose incomes are not enough but who have dependents. On the other hand, whole life insurance is perfect for those who have made a sufficient bank balance and can afford to cough up a considerable amount of premium and aspires to make profit from the cash build up in future. From the point of view of age group, the term life insurance is more suitable for the under thirty people, while the whole life is perfect for the forty approaching people.

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