Whole Life Insurance Vs Term Life Insurance

Both Term and Whole life insurance provide a basic death benefit, but whole life insurance also builds up what is referred to as "cash value," essentially a savings feature that you can withdraw or borrow against.

There are several forms of term insurance:

Level term -- you pay a fixed premium for up to 20 years. This can be a good deal, since it protects you against the effects of inflation and unexpected changes in your health that would warrant higher premiums.

Annual renewable term -- gives you the option of renewing your policy regularly, but at increasing premium rates.

Decreasing term -- features a steadily decreasing death benefit. This might seem undesirable, but it can be sensible for many people. You may need a bigger benefit when you're a young breadwinner with a family to support than when you're a retiree with grown children and a nice nest egg.

Whole life insurance, meanwhile, is designed to cover you for your entire life. These policies charge you a fixed premium each year, one that's typically higher than term insurance. The advantage touted by insurance companies for whole life insurance is that, while part of the premium covers what term insurance would cost, the surplus resides in an account that pays interest and accumulates a cash value. As this "accumulation account" grows, your premiums can decrease over time. Eventually, in some cases, the interest earned can pay the premiums for you. So you won't be paying any more premiums, but you'll still be covered for the rest of your life.

Enter "Universal" life insurance, a form of whole life insurance. With universal life, in years when the insurance company earns more on policyholders' accumulation accounts than they promised, they pass along the extra gain. This sounds good, but in some situations, because of overly optimistic assumptions insurers make about customers' returns, customers can end up paying more than they expected to. "Variable" life insurance policies, which invest in sub-accounts that look like (but legally are not and cannot be) mutual funds, carry the same danger.

With universal and variable insurance, the higher the initial assumed rate of return, the lower the annual payments will be. This is how some unscrupulous agents can sign you up -- through very attractive policies based on unreasonable assumptions. Since most insurers invest to a great degree in bonds, be skeptical of any promised universal rates much higher than the 30-year Treasury rate. With variable insurance, since most mutual funds have trouble beating the S&P 500's average historical return of 10%-12% per year, we'd be skeptical of any projected rates in that neighborhood.

When considering your needs for insurance products for your home or business remember contacting Bennett Insurance Group is the right move.  Give us a call at 623-979-4140

Presented By:
Jim Bennett
Bennett Insurance Group
623-979-4140
http://jimbennettinsurance.com
jim@jimbennettinsurance.com