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Whole Life vs. Term Life Insurance

Posted on in Estate Planning

Life insurance policies come in several different types. The two main types of policies are term life and whole life. Within each are their own individual subcategories that are designed to suit differing individuals.

There are no definitive rules when deciding which type of policy is going to be the best for you. Although term life policies can appear cheaper and a more financially viable option to begin with this is not always the case. In the long run, researching and understanding the main differences between the two types of insurance can help you to make the most informed decision.

The length of the policy coverage is the main differentiating factor; whole life insurance covers you for your entire life whereas the duration of the coverage of term life depends on the particular terms of the policy. Term life will provide coverage for as long as you pay your premiums, there are term policies that have a fixed term such as 10 years, 20 years etc... Some insurance companies will also allow you to convert some or your entire insured sum into a whole life policy after a period of time or at the end of your term policy.

Cost is also a factor that should always be considered. Term life insurance is cheaper than whole life insurance because term policies only make payouts in the event of the insured's death. Some whole life policies will make cash payments when the insured reaches a certain age or at retirement age. There are also plans that will pay out if there are certain disabilities such as the loss of limbs.

People who have financial obligations, which make them unable to pay the larger premiums that are required with whole life plans, usually take out term life insurance. Although term life insurance premiums are cheaper whilst the insured is at a young age, the premiums usually increase as they get older. The benefits of whole life plan premiums are that they are usually at a fixed rate for the first ten years, after that the premiums will be revised and reviewed if necessary. These premiums are determined by the overall investments that are obtained and secured by the policy.

The difference in insurance payouts is also quite different for the two types of plans. Term life insurance will only pay the amount of money insured if the event of the death of the insured. So if you die after the policy has ended then, no payments will be received and there is no refund of the paid premiums if you live longer than the period of coverage. Whole life is a much more secure option for many as it covers your entire life so, upon death the insured sum will always be paid.

The two policy options can be combined to create the insured individual a plan that suits their personal needs and requirements. A whole life policy can be supplemented with a term policy for certain aspects such as home mortgages if this is what the insured prefers. If you have questions regarding protecting your family in the event of your passing, speak with a qualified Illinois estate planning attorney today.

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