Which is the best plan design for you?
Many people wanting to purchase life insurance get confused with the many differences in plan designs being offered. Some people want to purchase Whole Life Insurance and others choose Term. But there is only one problem, they don’t understand the difference between the two. I decided to create a complete one on one breakdown between the two products with independent quoting systems for both. This article should put all your questions to rest and make you a smarter life insurance shopper. Comparing the best online life insurance quotes is easy when you have product knowledge.
Low cost term life insurance can fit anyones budget
Term is by far the most popular and the most cost effective life insurance available today. You always have to keep in mind that Term insurance is a temporary form of life insurance that has a specific duration of time. It is commonly purchased in term periods of 10, 15, 20, 25 & 30 years. It is normally purchased with a level premium for the entire term period chosen by the applicant. Whole life on the other hand is a permanent form of life insurance. Whole life offers lifetime protection with the additional benefit of accumulating a substantial cash value. The cash value build-up is what inflates the premium.
Each one of these types of life insurance has its pros and cons. Let’s find out what product will work best for you.
Term vs. Whole Life Rate Comparison Showdown
If you have compared term and whole life quotes on both of these calculators. Let’s move on to the next step and examine the pros & cons of both plan designs. Let’s start with whole life because it is a more involved plan design.
What is whole life and how does it work?
First of all, let’s get right to the basics and talk about what whole life Insurance really means. This is a question many people wonder about but never really ask. The terminology “Whole life” actually means that it will stay in force for your whole life. It will not terminate unless you stop paying your premiums. Many years ago whole life insurance was once the most common plan design with no close second. The life insurance market has drastically changed since then.
As with all forms of permanent life insurance, whole life insurance provides lifelong coverage. It also includes an investment benefit that is know as the as the policy’s cash value. The cash value grows slowly with an interest rate which is applied and the cash value is always “tax deferred”. In other words this means you do not have to pay tax on the cash value build up while they are accumulating through the years.
Having a cash value in a life insurance policy was common in the past
You can actually take a loan against your cash value and even perform a cash surrender on the policy. You can also borrow money against the account or surrender the policy for the cash value. Keep in mind that the cash value has an impact on what the face amount on the policy is. If you cash surrender the policy, the policy will terminate and you will no longer have any coverage.
The concept of whole life is more complicated than term plan designs. Even though it’s more complicated than term life insurance, a whole life policy is still fairly simple to understand. Whole life insurance quotes are always higher than Term plans. Here are a few concepts to remember.
Here are the pros of whole life
- The policies premium always remains exactly the same for the life of the policy.
- The death benefit (face amount) is always guaranteed.
- The cash value build-up grows at a solid guaranteed interest rate.
- Whole Life policies depending on the company and exact plan design can earn dividends each year. You can utilize the dividends in the form of cash or just leave them alone. Allowing them to earn more interest and utilize them to lower your premiums. You can even repay any policy loans you made or purchase additional coverage which will increase your death benefit.
Cons of whole life
- Whole life costs much more than Term Insurance.
- Most people cannot afford the face amount they really need.
- Whole life policies are more complicated for insureds to understand
Term is the nations favorite choice
Term is life insurance that provides coverage only for a designated period of time listed on the policy. After the “term period” expires, the coverage no longer has a guaranteed level premium. The policy can be converted to a permanent policy such as universal life. If the owner of the policy decides to convert the policy to universal life. The new premiums will go up due to the fact it has now become permanent life insurance. If the insured dies during the term period, the death benefit will be paid to the beneficiary according to the terms of the contract.
Many people outlive their term policy because the term period was to short
Low cost Term insurance is most affordable way to purchase life insurance coverage with no close second. Just keep in mind it is a temporary form of life insurance. If the term period is too short the insured will outlive the policy. Outliving a Term life insurance policy means you may have no coverage when you still may need it. We use over 40 life insurance companies that offer the best Term life insurance rates. Usually when people compare Whole life insurance quotes, they usually get immediate sticker shock and say “show me the Term policies instead”.
Additional types of term products:
Level Term life insurance is the type over 90% of consumers purchase today. Very simply, these policies have term periods of 10, 15, 20, 25 and 30 year increments of time. Level Term means the premium will stay exactly the same for the full term period. Just as an example the premiums of a 30 year Term policy stay the same for 30 years.
No Medical Exam
No Medical Exam Life Insurance means exactly what it says, this is life insurance with no medical exam required. An applicant can complete an application and then move on to complete the underwriting process. The actual application itself can be a little shorter with a few less questions to answer. Most people who do not like a Para-Med visit and physical exam appreciate these policies. The only drawback is these no medical exam life insurance policies cost more. If you are looking for the lowest possible premium, a conventional Term policy is best.
Return of Premium
Return of premium term life insurance returns your premium if you outlive the policy. If you purchased a return of premium 30 year term life policy, you would pay premiums for 30 years. If you outlive the 30 years you collect all 30 years of premiums back in full. Even the return of premium rider is paid back to the owner of the policy. The only side effect is these policies also cost more than standard term life policies do. The great part is after years of paying you could receive all you premiums back in a nice check.
Term life insurance policies purchased today come with an excellent conversion feature. This allows you to convert your term policy to either a whole life or universal policy. You can convert your policy without taking another medical exam. If you health history changes for the worse, it won’t effect your conversion.
Simplified issue term life insurance is virtually no medical exam life insurance. Neither one requires a medical exam from a Para-Med nurse. The simplified issue term policy has a shorter application can be approved within 24-48 hours. These types of term life insurance are popular but cost more than the standard term life policies.
Guaranteed issue life insurance is a life insurance policy that has guaranteed approval clause. This is also referred to as high risk life insurance. The face amounts will be lower than traditional policies. In many cases the maximum face amount will be $25,000.00 and the premiums will be considerably higher. Since there are no actual medical questions and everyone is approved, these policies will have a waiting period before benefits are ever paid out. If the insured dies during the initial waiting period, only premiums plus interest will be returned. Once the waiting period has been satisfied, the full death benefit will be paid out to the beneficiary. The usual waiting period for guaranteed issue policies is 2 years. These policies are designed for people with serious medical conditions.
Is there another permanent product that is more practical than whole life?
Universal life insurance is the modern day replacement for whole life but at a much lower cost. The biggest reason for the lower cost is the cash value is much less. Universal life is also referred to as a UL policy. Whole life insurance became obsolete when the UL policies came out and offered permanent coverage at a much lower premium. Over 20 years ago, the UL policies all offered a cash value benefit.
As the years went by, the industry lowered the interest rate of the cash value which in turn lowered the premium. Now there are some universal life options that have no cash value at all further lowering the premiums. It has been found that the cash values in life insurance is not very practical with its added expense. Consumers need higher face amounts than in the past and whole life is just too expensive. Feel free to use our whole life insurance quotes calculator.
Combining term along with a universal life is very cost effective
You can now purchase a UL policy which will give you lifetime protection at a fraction of the cost of whole life insurance. When an individual purchases universal life insurance. They have an option of purchasing a cash value version or no cash value what so ever. If you choose the cash value version, it is still an affordable way to purchase permanent life insurance. We use Protective Life and Banner Life for UL requests due to their excellent life insurance rates. Feel free to use our face amount calculator to help you find the best face amount. You never want to be under insured or over insured.
Our final word and recommendation
We do not recommend whole life insurance due to its very high cost. Many of the companies no longer even offer these plan designs anymore. If you are looking for permanent life insurance, universal life will be your best product to consider.