Term Life vs Whole Life

Life insurance can be taken out in a number of different ways. Two of the main types of insurance are Term Life and Whole Life. These are explained briefly below.

Term Life Insurance

Term Life Insurance refers to taking out life insurance for a specified period of time. It can be taken out in two ways namely level or decreasing :

• Level Term insurance allows you to pay fixed premiums for the length of the term of your policy. It is generally cheaper as the costs involved are predictable and there are no hidden surprises. It does not usually have an investment component attached to it. The popularity of Level Term insurance has decreased over time and this has lead to other policies becoming more popular. This type of policy is thus very rarely offered as a stand alone product anymore due to it's decreased economic viability. The increase in Aids claims has also affected the use of Level Term Insurance.
• A Decreasing Term policy is usually used to cover decreasing amounts of debt. As your debt decrease, in other words as you pay off your debt, the amount of cover needed decreases and thus your payment of premiums decreases as well. This type of insurance is particularly popular to cover mortgage payments and should you die the policy will settle the amount owed to the bank thus reducing the pressure on your loved ones to cover your debt in the event of your death.

The disadvantage of term cover is that you may have been paying your premiums for a fixed number of years and after that time has expired your policy falls away and you no longer have cover.

Whole Life Insurance

Whole Life Insurance pays out at the time of your death irrespective of age or term of insurance. It pays the amount of cover you initially selected to your beneficiaries on your death as long as your premiums have been paid. It has no cash values attached to it.

One option available with Whole Life is to be able to increase the amount for which you are insured at selected intervals of your policy. Whole life is useful if you want to make sure that your loved ones will have a cash injection on your death which will help them to face their financial burdens. The potential disadvantage of this type of policy is that you will be paying increasing premiums at a time in your life when expenses need to be predictable.