What is the difference between term life and whole life and what is better to buy?

I would like to buy insurance for myself but what is best. term Life or Whole life and what is the different.

Hi, your friendly insurance guy here again. :)

Long, but hopefully informative, post.

Let's get the ugly bit out of the way first:

Term is cheap, Whole Life is expensive. Whole Life pays an agent or broker more commission because it costs more and generally is given a higher percentage commission than Term products. I mention this because there are a lot of people who hate Whole Life products and think the people who offer them are sleazy. Thus, I am putting that bit out here right in front to satisfy the Whole Life Haters. :)

Here's how Term Works:
You buy it for a specified period of time (typically 1, 5,10,15,20,25 or 30 years). When that period, or TERM, is over, you can usually renew it yearly at a vastly increased cost until you reach a particular age. The age at which you can no longer renew vaires by insurance company. If you live past your TERM and have not renewed, your family gets nothing and you have lost all the premium money you spent (unless you have a "Return of Premium" rider, which not all companies offer and which is often extremely expensive to add).

Here's how Whole Life works:
You buy it now. It stays in force typically as long as you pay your premiums. The payments stay the same forever; ther eis no "holy crap the renewal cost is insanely higher than last year." It develops a cash value over time and in many cases the face value of the insurance goes up as well.

This, by the way, is the fallacy of all those people who say "the insurance company keeps the cash value when you die." That's not exactly accurate. As long as the cash value is in the policy, the typical function of it is to pay for additional face value of the insurance. So yes, while you don't get a check for the cash value when you die, your death benefit will be larger than the original face value of the policy, making it generally a wash. If you have had the policy for a very long time, the policy owner comes out ahead in many cases.

The cash value is NOT, NOT, NOT an "investment." That term is reserved for certain other things, like mutual funds. It can be called a cash accumulation vehicle or a savings vehicle. It is NOT an "investment."

The downside to Whole Life is that it costs a LOT more than the same face value of Term insurance - at least, in the short run. If you buy a 20-year term policy for $100,000 at age 25, start renewing it annually after it runs out at age 45, and compare your lifetime costs, the Term policy will absolutely kill your wallet. The Whole Life policy in the long run costs a LOT less than constantly renewing an old Term policy. This does NOT mean Whole Life is for everyone. It's only appropriate in some situations and for certain clients with specific needs.

So which one is the best? This is the part where I hope folks who are shrieking "But...but Suze Orman told me to buy term and invest the rest" realize I am not some commission seeking scumbag:

IT DEPENDS. There is no "off the cuff" answer. To know for sure which is the best for you, your specific situation needs to be evaluated. Contrary to what other folks may say, I do recommend using an agent. I do that because I am one and I treat clients properly. If you go to an insurance company directly, you lose the benefit of having a local contact. And guess what? Generally life insurance companies are NOT going to give you a discount because there's no agent involved. They charge the same and keep the commission money themselves.

So talk to an agent. Talk to several. Find one that you are comfortable with. The agent should be focused on doing a full evaluation of your specific needs. Be careful with anyone who says:

"Buy Term and Invest the Rest." (they have a preconception of what's right without wanting to consider your case may not fit their mold - ask if they are willing to consider other viewpoints based on your particular situation)

Or

"Get 10 times your salary" (anyone choosing the amount based on a formula is giving you a canned answer, not one tailored to your particular needs. Ask if they can help you arrive at a number tailored to your family's needs rather than using a formula)

and run from anyone who does not try to do a full evaluation.

Look for someone who will help you BUY insurance, rather than try to SELL you on something.

And I know this is a scary one, but once you have done the evaluation, ask if that company does temporary binders/receipts. If they do, it means you can get coverage in force while the application process is under way. If it's available, DO IT. Fill out the application. Once you have your evaluation and know what the right amount is, do the application as entirely TERM insurance, even if you are getting other types. Have hte agent include a cover letter and notes in the application to process you for approval but NOT to issue the policy till the underwriters speak with him or her. This will keep the expected first month's premium low. Write the check for the first month and give it to the agent. Why do that?

BECAUSE YOU ARE NOW COVERED, and once you are approved, you can always have the agent call the underwriter and say, "Hey, remember Mary Jones who got approved for $750,000 of 20-year term? Well, she wants it issued as $500,000 of the term and $250,000 of Whole Life."

You are allowed to decline to accept the policy and get a refund any time during the application process, during underwriting, and past the time you accept delivery up till the end of what is called the FREE LOOK period. IN my home state, that is ten days long.

So in reality, you are not committed to anything till ten days AFTER you've been approved and had the policy delivered.

Once you get approved you can change what KINDS of insurance you'll receive.

What you don't want to happen is that you die after having taken the trouble to go through the process, but NOT bound the policy. Can you imagine how badly it would suck if you actually did all this but did not pay the first premium so you could bind the policy and then died on your way home from the application appointment?

Remember, you can get your money refunded to you any time up till the end of the Free Look period. Why not get the coverage in force from the day you do the application?

What are the pros and cons of a whole life policy & a term life policy?

Why is whole life a rip off?
Thanks for all the answers. They've been really helpful.

I assume you're in the UK? There are differences in products in the US and UK, even if they share the same generic name.

Whole of Life insurance usually has an investment element because we don't know when you are going to die and the cost of life cover is more expensive as you get older. The (hopefully) increasing fund value subsidises the increasing cost so that your premium stays reasonably constant.

Term Assurance
Pros
- cheap
- guaranteed premium
- sum assured can be level or decreasng to match interest-only or repayment mortgage
- benefit is tax-free

Cons
- you don't get anything back if you don't die during the term
- if you die after the policy has expired, you get nothing
- inflexible. Cannot usually amend term or sum assured etc during the policy term

Whole of Life
Pros
- insures you for the rest of your life. It inly ends if you die or stoppaying premiums
- flexible. Sum assured and other policy details can usually be changed during the life of the policy
- if you no longer need the policy, you may get some money back

Cons
- you may have to pay tax if you surrender the policy and get some money back, if you haven't had the policy for long
- most WOL policies have an investment backing. If the funds don't perform in line with original expectations, you could end up having to increase premiums or reduce your sum assured
- commonly people confuse unit-linked WOL with a savings policy. This is wrong. It is life insurance with an investment backing.

There are very few convertible term assurance policies in the UK, so I would disregard that answer. They're just not competitive or suitable for most people.

WOL is not a rip-off, but whether you need WOL or term depends on your circumstances. The bottom line is, both are insurance policies. Why would you expect money back if you don't claim? You don't for car insurance, buildings & contents insurance, holiday insurance etc.

Apart from the misconception that WOL is a savings plan, the most common issue is that the funds don't perform well and you have to pay more premiums. Provided this is explained and understood at outset, and you pick the right fund(s), this shouldn't come as a shock if it happens. However, there are one or two companies (Skandia, L&G) who are offering guaranteed premium WOL policies for consumers who don't want to take any risk.

Whether to go for term or WOL depends on what you are insuring and why.

For example, typical term assurance uses are mortgage/debt protection or to cover the cost of rasing children until they become financially independent of their parents e.g. 18 years.

You might use WOL for inheritance tax planning or to cover funeral costs.

Hope this helps.

I am 65 and wondering which insurance I should take. Term, whole life or Universal life?

I already have two policies that are already paid for. But I am looking for an additional insurance policy. The agent called me and said portable insurance from my company is not that great because the premium goes up every few years but the Universal term life the premium remains the same. I can only assume this does not have a cash value. Help, Help, Help he is coming over tomorrow.

Ok, ask him this question What happens to the money that I have in cash surrender value if I die? I assume you have relatives spouse, children etc. do you know that THE MONEY THAT YOU THINK YOU HAVE (CASH VALUE) WILL BE KEPT BY THE INSURANCE COMPANY? That is a fact. now then the premium on a universal stays the same but as you get older, the cost of insurance goes up. if you pay a certain premuim, the policy costs more every year, but you are paying the same premium. so what is happening is this, the cash value is used to help pay the shortfall of the premium.and soon, the policy has no cash init, and it then runs out or lapses. and then you are older, and have no insurance. So, if you need insurance buy term, and take the premium money that crook wants you to spend and invest that money (even if it is in a CD) at least the money is YOURS. THIS IS THE TRUTH. Dont believe those who say term is worse. it is still way better because you're not buying over-paid insurance. The universal companies and whole life are about 75% over charging you. they buy a term policy on you, but for way more and steal your time use of money

What is the difference between whole life insurance and term life insurance? What is the difference between whole life insurance and term life insurance?

There are a number of differences between the two types of policies. The simplest way of looking at it is that term is like renting and whole life, or permanent, insurance is like owning.

Term insurance provides you with typically the lowest priced insurance product because the only accept the risk that you will die before reaching a specified date. If you do die during that time then the insurance company pays the established death benefit. If you out live the policy, you will typically not receive anything back.

With whole life insurance, you are paying the insurance company to provide your family with the insurance pay out when you die. Whole life insurance will usually last until at least age 100, regardless of when you begin the policy. There are some variations of whole life which also allow you to finish paying on the policy at a specified age, or after a set time period, but in these cases, the policy lives on even though you are no longer paying for it.

A class teacher has the following absentee record of 40 students of a class for the whole term.?

A class teacher has the following absentee record of 40 students of a class for the whole term.Find the mean number of days a student was absent.
0-6-11
6-10-10
10-14-7
14-20-4
20-28-4
28-38-3
38-40-1
Answer should be 12.38 but it is coming 12.48.Pls help me out

You seem to be including at least one student in two different categories all throughout your problem. This will skew your answer and make it nearly impossible to figure out where you are getting 12.38 OR 12.48. The fact is, you have 40 students who collectively have been absent 40 days, making the MEAN, or average number of absent days per student 1 day each.

When does Whole Life Insurance start paying off for itself? Do you recommend Whole Life or Term?

Whole life insurance never pays off for itself unless you choose a payment option such as 20-pay whole life or life paid up at age 65. You will be paying more premiums than if you were to just pay for life. Most people have the payment option of continuous payment for life. If this is what you have, then your life insurance will neve pay for itself.

While you can stop paying for the premiums in the future, your cash value will be used to pay for the premiums. Your face amount will be reduced by whatever missed premiums and any loans taken out of the cash value. If your policy lapse and you have unpaid loans, you will owe income tax on the loan because the loan has turned into additional income.

I have always recommended term insurance over whole life. Its initially inexpensive and premiums remain level, depending on what kind of term you get. I sell mostly 20 or 30 year term, depending on the age of the client. I rarely sell 10 year term since most of my clients are between 25-55 years old and it doesn't make sense to sell 10 year term to that age group.

Let's say you are 35 years old and you bought whole life insurance and you can only afford $150,000 coverage. You pay monthly premium of $114. With a 20 year term insurance, for the same amount, it will cost you only $22/month. Would you rather pay $114 or $22?

If you invest the difference of $92/month at a 10% rate of return for the next 20 years, you will have: $70,444 at age 55. If you continue to invest for the next 10 years, at age 65, you will have $209,698.

You probably wondering how can you get 10%? If you understand mutual funds, that is how you can get 10%.

What if you outlive the term? Then you need to re-evaluate your needs at that time. Do you still need as much coverage? How much debt do you have left? Who is currently dependant on your income? Maybe you can keep the same coverage and use the gains or interests to pay the premium, that is your portfolio still continue to earn an average rate of return of 10%.

Today, life insurance agents or even your financial planner continue to push forward on cash value life insurance. Why? They earn large commissions on it. While financial experts and investors say term insurance and investing the difference is better. (smartmoney.com March 24. 2005, Wall Street Journal (June 9, 2004)). If you understand the logic of investing the difference, in 20-30 years, you would of accumulate enough money where the gains or interests can pay off the annual premium.

What is the difference between Whole Life and Term Life Insurance? What is the difference between Whole Life and Term Life Insurance?

LOL I'm laughing at the justifiable claim Bob says, that means, YOU DIE.

Anyway. Whole life, the premium is set when you take the policy out. You pay that premium every year, for your WHOLE LIFE, and it doesn't change. As eventually you WILL DIE, and the odds are always in favor of the insurance company, you will end up paying a WAY LOT for whole life insurance, IF you keep it until you die.

Term life, the premium is set when you take it out, but only for a certain number of years. It's WAY cheaper than whole life, consider it "pure" insurance. When the term expires, you can renew it, but at a higher premium.

Term is cheaper, but expires (and can be renewed). Whole life never expires, but costs about 10X as much.

Which you pick, is going to depend on what your GOALS are.

Is it better to have term life insurance or whole life insurance?

I am 26 years old and just had a baby and want to know which insurance is better whole or term.

How do I determine how much to get?

Who besides my daughter if anyone should be the beneficiary? Note: Her father and I aren't married but I was considering leaving him a percentage so that he could have extra $ to provide for or daughter if neccessary - Is this a good idea?

Never buy a whole life policy. Here is a good article explaining why:

http://lifeinsurancenow.com/how-to-buy- ... ce-policy/

Term will be your best value. You can get the best quote here:

https://www.expert-quotes.net/term_life ... ce/lin.htm