Not the Same: Difference Between Term And Whole Life Insurance

Perhaps the easiest way to understand the difference between term and whole life insurance is to compare it to the difference between renting an apartment and owning a home. Whether you own or rent your home, you're still required to make monthly payments known as rent or mortgage payments. The same is true for term life insurance and whole life insurance: both require a monthly payment, known as the monthly premium.

Both rented apartments and mortgaged houses provide shelter. Similarly, both term life insurance and whole life insurance provide protection in the form of coverage, also known as the death benefit. Term life insurance performs one simple, easy to understand function: it provides the insured's beneficiaries with money in the event of his death. It serves no function beyond this; therefore, if the policy owner outlives the term of his policy, he will receive no money.

Whole life insurance, like all types of permanent life insurance, is a little different. It provides the insured with certain financial benefits beyond the basic death benefit. As with a mortgage, you can borrow against a whole life insurance policy. Therefore, owning a whole life insurance policy may enable you to take out money for home improvements, retirement, and so on.

At first glance, a permanent plan may seem superior to a term plan. But keep in mind, term life insurance is usually much less expensive than whole life insurance. It's usually a better choice for young families who are still building their wealth. Term life insurance is also more straightforward and "foolproof." If you own whole life insurance and your insurance company performs poorly, you may suffer financially; with term life insurance, this scenario doesn't apply. To learn more about the difference between term and whole life insurance, call EFinancial at 1-866-765-4296.