Understanding Term vs. Whole Life Insurance Policies

By Shannon Gurnee
In Family
February 8, 2019
18 Comments
1212 Views

Today’s blog post on Redhead Mom is about understanding term vs. whole
life insurance policies as part of a sponsored post with Mason Finance.

Mason Finance Term versus Whole Life Insurance Policies #LifeInsurance #MasonFinance #ad

From the minute our children come into our lives, we are looking for ways in which we can protect them. Something that I personally don’t like to think about is death and how my children would survive if something happened to me. Nobody knows when their last day will be and preparation can not come soon enough when it comes to taking care of our family. Buying life insurance can get complicated, but if you understand the differences between term vs. whole life insurance, it will make things much easier.

Term Life Insurance

A term life policy is pretty simple in that it offers pure death benefit protection for a certain period of time, such as 10, 20 or 30 years. It is cheaper than any form of cash value life insurance, but can get expensive once insureds reach their later years. There are different types of term coverage, including guaranteed renewable, mortgage term, decreasing term and level premium term. Guaranteed renewable term life insurance guarantees that the insured my renew their policy at the end of the term with no additional underwriting needed. It’s not surprising to find out that this guarantee comes at an additional cost.

Some term life insurance policies have rising premiums or shrinking death benefits, but now there are accelerated benefit riders for an additional cost in many policies. The riders will pay out some or all of the death benefit while the insured is still living if he or she becomes disabled or diagnosed with a critical illness such as heart disease or cancer. Some term policies offer a return of premium rider for an additional cost that will refund some or all of the premiums paid into the policy when the term expires.

Mason Finance Term versus Whole Life Insurance Policies #LifeInsurance #MasonFinance #ad

Cash Value Life Insurance

How about cash value life insurance? This type of life insurance does cost more to begin with, but will remain in force for the insured’s entire life as long as the premiums are paid. This type of insurance has a built-in savings account that grows tax-deferred over the life of the policy, which can then be used as retirement savings. Though more expensive, more of the cash value policies pay out their death benefits than term policies. Plus, cash value policies can eventually accumulate to the point where they become paid up, which means that you won’t have to make any more premium payments to keep the policy in force.

Cash value accumulation can eventually become a substantial asset for you after you have paid premiums into the policy for many years. And policy loans may not need to be repaid, but rather they will simply reduce the amount of cash value and face value remaining in the policy. There are several types of cash value policies.

Whole Life Insurance

The simplest and oldest form of cash value life insurance is that of whole life insurance. Its premiums and death benefit remain at a fixed dollar amount, regardless of how much it accumulates in cash value. Whole life insurance policies pay set dividends on a regular basis, which you can either take in cash, allow to grow inside the policy, decrease your premium or use to buy additional coverage.

Universal Life Insurance

Universal life insurance has flexible life insurance premiums and pays interest to the policy’s cash value. It is different in that its death benefit can fluctuate. The rate of interest that it pays will also fluctuate according to prevailing interest rates. Some universal life insurance policies pay interest that is calculated according to the performance of an underlying financial benchmark, such as the S&P 500 Index.

Variable Universal Life Insurance

Variable universal life insurance invests its cash value in a collection of mutual fund sub-accounts, which invest in stocks, bonds, cash and real estate. The cash value in this type of policy is not guaranteed and will rise and fall with the stock and bond markets. Regardless of the type of cash value insurance you have, you will be able to access the cash value in your policy at any time. You can do this either by direct withdrawal or by taking out a loan against the policy, but the death benefit will be reduced by any outstanding loan amount when the policy pays it out.

Which One to Choose

When it comes to deciding which life insurance policy is best for you, you’ll want to consider the different factors. For instance, what is your disposable income? Do you have debt obligations? What are your financial needs? Be sure to shop around online, as well as in person, so that you get several life insurance quotes from different companies before you purchase any type of coverage. Doing this will give you a better idea of what’s available. Your financial advisor or life insurance agent can also help you find the policy that works the best for you.

What is your favorite tip from this article when it comes
to choosing a life insurance policy?

 

About Has 1695 Posts

Shannon Gurnee is the author of Redhead Mom formerly "The Mommy-Files", a national blog with a loyal following. She has a Bachelor's Degree in Marriage, Family, and Human Development with a Minor in Business Management. Shannon and her husband, Frank, have a large family with 6 awesome kids and love living on the Central Coast near San Luis Obispo, California, as well as traveling around the world. A full-time Social Media and Professional Blogger, Shannon also serves as a National Brand Ambassador for many well-known companies. Her blog focuses on motherhood, family fun activities, traveling, fashion, beauty, technology, wedding ideas and recipes while providing professional opinions on products, performances, restaurants, and a variety of businesses.

18 Responses to “Understanding Term vs. Whole Life Insurance Policies”

  1. Hi, Very Good Article. I really appreciate it. Now you got one regular visitor to your website for new topics. Keep up the Good Work Thanks for always sharing. Nicole Graham

  2. annick says:

    ahh insurances are so complex to understand — thank god for my mom for sorting mine out ☺️

  3. Heather says:

    I know this is something my husband and I need but I’m so afraid to make the wrong decision. Thank you for this explanation! It really helps.

  4. Shannon says:

    Thanks for sharing all this information! I didn’t know about all this insurance stuff. I’m glad you shared it with us

  5. Lyosha says:

    so very useful! I am a bit dumb when it goes for insurance, thank you for making it clear even for me.

  6. Am planning to buy some insurance services, so this was a very helpful post. Thanks.

  7. This is such an interesting topic. Everyone should read this. Thank you for sharing!

  8. Sara Welch says:

    I never understood the difference between all the different types of insurance; this is great information to have!

  9. Nafisa says:

    Such a helpful post. Thanks for sharing

  10. Marysa says:

    These are good to know about, especially as a parent. I need to make sure that my life insurance policy is squared away. Thanks for the info.

  11. Elizabeth Keene says:

    This was very informative, thank you for this!!

  12. Preet says:

    Such These are a great topic, especially for us parents. Insurance is really important to everyone and it was a great thing to learn more about it.

  13. alexandra cook says:

    Insurance is really hard to understand sometimes but this blog is really informative, I learned a lot

  14. I know this is such an important topic thank you for bringing this to my attention we really need to get our family covered

  15. so glad you posted this as I need to get my insurances sorted out, especially as I’m a freelancer!

  16. Very Good Article. Insurance can be a very confusing subject. Thank you for clarifying some terms.

  17. insurance can be difficult to navigate without the proper knowledge. this is really helpful!

  18. It is great that you have shared such an informative post on life insurance. I am sure people who are looking for insurance would find it very helpful. Great job!

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