Whole and Term Life Insurance

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For anyone with obligations, life insurance is essential. Often, the challenge is figuring out how much insurance to buy and which type of policy is best for their circumstances. There are two general forms of life insurance: whole (permanent) and term life. Here is a quick overview of each:

Whole Life Insurance: Whole (also known as permanent) life insurance is the most stable life insurance product. As the name implies, the policy is permanent as long as you keep paying the premiums. There are numerous variations of the whole life concept, and they can be turned into very complex investment vehicles. The common thread among whole life policies is they build cash value over time. This means they not only pay out a death benefit, but they also become an asset from which you can borrow against if you are short on funds or even cash out in an emergency. The permanent nature of whole life is attractive to many, but the major disadvantage is the cost. For the same death benefit, whole life insurance can cost as much as 10 times (or more) of the price of a term policy.

Term Life Insurance: Term is temporary life insurance that is valid for a specified period of time. Terms may start at as low as five years and go all the way up to 30 years. If you acquire term through an employer, it will typically last only for as long as you work for the company. Term is the simplest form of life insurance, with policies that accumulate no cash value and only pay out a death benefit.

Though term life insurance has no cash value and has an expiration date, it does have a major upside; the price. As life expectancies rise, term life rates continue to plummet. The price of the policy depends on the age and health of the insured and length of the policy. For example, a 40 year-old in fair to good health can typically purchase $250,000 in term life coverage for under $50 per month.

For those who need a cheaper policy but want to have permanent insurance at some point in the future, a convertible term life policy might be a good choice. Convertible term life insurance is a hybrid product that offers the best of both worlds; affordable term insurance for a specified period with the ability to convert it over to whole life insurance with guaranteed acceptance at a future date.

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