Term Life Insurance vs Whole Life Insurance
The first decision you will be faced when you decide to buy a life insurance policy is what type of policy you need to have. Term life insurance has an expiration date, and once that date is reached the policy will either be canceled or you can renew it at a higher premium cost. Whole life insurance does not expire, which makes it more effective as a long-range financial tool, plus the other options that come with such a policy.
Term life and whole life insurance are not designed for the same purposes. Term life policies are typically purchased to guarantee life goals, such as making sure your kids are able to go to college, paying off the family home in the event of your death, or giving your spouse the money needed to return to the ancestral homeland after you are gone. Whole life insurance is intended to provide for an inheritance, pay off your debts, and to make sure that your loved ones are not burdened with the cost of your final expenses.
Term life insurance usually has lower premiums than a whole life policy. If the cost of the premiums is a big concern, it may be in your best interest to buy a term life policy. On the other hand, the money you pay into a term life insurance policy could be lost if you outlive the policy while an whole life policy will only grow in value over time as it builds cash value.
Term life insurance is limited. You cannot borrow against the money you have invested in the policy, or manipulate the money you have invested in any way. With whole life insurance, you can borrow against the amount you have paid in, called cash value, and some type of policies will even allow you play an active part in how the money you pay in is invested, which has the potential earn money for you while you are alive.