What is the Difference Between Term and Whole Life Policies?
There are two different kinds of life policies: term life policies and whole life policies.
Term life policies last for a predetermined amount of time, such as 10, 15, 20, 25, or 30 years. On the one hand, they will only provide death benefits if the policyholder passes away during this time. On the other hand, policyholders only need to pay premiums while the policy is in effect. Additionally, premiums tend to be lower than whole life policies’, because the insurer only needs to provide coverage for a set amount of time.
Whole life policies are designed to provide coverage for a person’s entire life, including into old age. Insurers expect to eventually pay death benefits for these policies, since they’re designed to last the policyholder’s lifetime. Therefore, the premiums for the policies are often higher than the premiums for term policies.
Whole life policies often also act as investment vehicles and retirement plans. Some of the funds that are paid into them can be put towards a number of investments, which grow over time. With some wise investment decisions, the returns that these investments provide may exceed the policy’s premiums — and the policy may effectively pay for itself later in life.