Passive Income Blog

Term Insurance vs Whole Life Insurance? Now which one do I choose?

This is the ultimate question when you are planning to purchase life insurance .

First let’s look at the differences between Term insurance vs Whole Life insurance .

Term Coverage :

Basically term coverage is life insurance for a period of time . Each month’s life insurance premium is fixed and does not fluctuate. The insured person’s life is protected for a period of time .

You are allowed to purchase a term policy for a time period of 1-30 years time . Your monthly life insurance premium will be the same each month for the entire time period of the policy.

When completing the term policy a beneficiary will be decided upon and if the death of the insured occurs the beneficiary will be paid the amount listed on the policy .

Term policies are much less expensive than Whole Life Insurance policies .

Permanent Life Insurance / Whole Life Coverage :

With this type of life insurance you combine life insurance and add a savings or investment portion onto it . It is permanent insurance so the person insured is paying premiums for a lifetime . It is life insurance for the entire life of the insured (plus an investment component) .

Different from Term Insurance, with Whole Life Insurance you now have an investment component which could be in mutual funds, money market or their stocks :

• Bonds
• Money-market
• Stocks

Being much more expensive than Term Life Insurance whole life insurance also has a fixed monthly premium that you will be paying .

Additional variations of Whole Life Coverage:

•     Traditional Whole Life Insurance
•     Variable Life insurance
•     Universal Life Insurance

A portion of the funds that you are paying on a Whole Life Insurance policy will go into an investment vehicle . You will have some investment options held by the life insurance company that holds your policy. You are able to borrow money from your investment as it grows but you must pay it back to the policy with interest.

For any type of life insurance when a person reaches the age of 55 the cost of insurance to cover that person will jump. Keep in mind that Term Life insurance companies may not insure people over the age of 65 .

So Term Insurance vs Whole Life Insurance? How can we choose?

Auto Insurance is pure insurance and that is what term insurance is . It is much less expensive than whole life and with your savings you can put that money into any investment which you choose and control .

Whole Life Insurance is Life Insurance plus an investment component . With the limited number of investments available for your whole life insurance policy you are taking a higher risk with whole life coverage.

The strategy recommended by us :

When getting your life insurance quotes you can calculate the difference between a term insurance policy and a whole life insurance policy . With the difference in cost take those savings and automatically invest it in mutual funds, stocks, savings account, CDs, bonds or money market.

You won’t ever have to borrow the money from your investments and have full control of your money. Plus you will be protecting your family and be insured .

Comparing Term Insurance vs Permanent Whole Life Coverage .