Life insurance is a tool that may help provide financial security for your loved ones in the event something should happen to you. You are probably familiar with the terms "term life" and "whole life," but may not necessarily understand the differences between these two types of insurance.
Also called temporary insurance, term life insurance covers a person against death for a limited time. As an example, the term may cover the person until children reach the age of 18, until college tuition is paid for, or until retirement. This is the ideal coverage for those whose insurance needs may decrease over time.
With a renewal provision, term life policies can be renewed at the end of the term without providing additional proof of good health. Although initially affordable, the premiums may increase with each renewal.
At the end of the term, you pay for the policy period or the policy expires. This is similar to auto insurance in that you don't receive any benefits unless a claim is made against the policy during the term.
Also called permanent insurance, whole life insurance is permanent and does not expire as long as you continue to pay the premiums. The premiums do not increase - they are locked in for life the day you sign the contract. The coverage is similar to term life, but whole life acts as an investment vehicle as well with a portion of the premium going towards it and the rest going into an investment account. The investment account can be an interest bearing account or a variable investment account (like stocks or bonds).
Term life insurance is generally better for young families with large financial obligations since this policy offers substantially lower premiums and provides sufficient coverage to protect against loss of income. Whole life insurance is generally purchased by people for tax and estate planning purposes. Consider consulting a financial advisor for advice in selecting the best policy for your family.
Ultimately, the type of life insurance you choose depends on the amount of insurance you need, your budget and your estimated length of commitment.
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