More Information About Whole Life Insurance and Term Life Insurance

What Is Whole Life Insurance?

Whole life (also referred to as permanent life) is a life insurance policy that remains in force throughout the insured’s life. These policies accumulate a guaranteed “cash value” or cash reserve that builds up against the death benefit. Whole life policies typically include an investment component whereby interest is credited to the cash value account. In most cases premiums must be paid every year into the policy but some “limited pay” policies can be “paid up” after a certain number of years (such as 10 or 20 years) and some policies even provide for an single lump sum premium payment. Upon maturity of the whole life contract (usually at age 95 or 100), the cash value is equal to the death benefit. Upon the death of the insured, the beneficiary receives the death benefit. If a whole life policy is surrendered (i.e., cancelled) prior to maturity, the amount of cash that will be returned depends on how long the policy was in force – the longer the period, the more cash that will be returned. Also, prior to the death of the insured, the policy owner may choose to borrow the cash value and forfeit the death benefit.

What Is Term life insurance

Term (temporary) life insurance provides death benefit coverage for a specific period of time (typically 10 to 30 years). Generally premium payments remain fixed for a certain number of years and then begin escalating as the insured gets older. Unlike whole life insurance which guarantees eventual payment of the death benefit, term insurance only pays if the insured dies during the term of the contract. Premiums must be paid throughout the term or the policy will lapse and there is generally no cash surrender value. Term life insurance is less expensive than whole life insurance because its sole purpose is to provide financial security for a limited period of time and has no investment component.

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