Term Vs Whole Life Insurance | Life Insurance Explained
18.4 هزار بار بازدید -
4 سال پیش
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When looking into purchasing life
When looking into purchasing life insurance, it is essential to understand the basic pros and cons of both whole life and term life insurance to make the best decision for you.
Good financial decision-making is based on solid research and sound advice.
Don’t let financial advisors do the thinking for you because they only have one word in mind commission. The commission is what drives them to give you the best advice for them. Not you.
Let’s start with some basics, shall we?
Whole life insurance provides the insured party with a lifetime permanent coverage in exchange for level, regularly paid premiums. In the case the insured party dies, a death benefit is provided for the insurance beneficiaries. The important thing to know about life insurance is that it does not have an expiry date and has the potential to be used as an investment tool.
When premiums paid into your whole life policy matches the death benefit, it is considered to have reached its maturity date. Typically, insurance companies design policies to mature when you turn 100, but some recent policies even extend the maturity date to age 120.
Term life insurance which is sometimes referred to as pure life insurance provides the policyholder with temporary coverage for a specific term that may range between 10 to 30 years. If the insured party dies within the term, the policy beneficiaries receive the death benefit. On the other hand, there will be no death benefit if the term policy expired before the insured party dies. Nevertheless, the policyholder can have the option of renewing the term policy or even converting it to a whole life policy that does not expire.
Term Life insurance comes in several flavors including convertible, increasing, mortgage, and annual renewable. Each one of these types targets a specific need for potential customers.
Convertible Term allows the term insurance policy which typically has a limited number of years to be converted to whole life insurance before it expires.
Increasing Term allows the increase of death benefit as the time goes forward.
The Mortgage Term which is sometimes referred to as the decreasing term is the exact opposite of the increasing term. It's done in a way that the death benefit amount decreases over time. This is to match the death benefit with the decrease of the policyholder’s outstanding mortgage amount.
The last type is the annual renewable which each year renews the term insurance for a higher premium since the policyholder is a year older. The main benefit of annual renewable is that the coverage is guaranteed to be approved every year.
When it comes to the main components, whole life insurance is made of premiums, death benefit, and cash value while term life insurance is composed of only premiums and a death benefit.
The main difference is the cash value component in the whole life insurance which is sometimes referred to as a living benefit while the term life insurance is not worth anything unless you were to die during the term and that’s when you receive money.
Part of the premiums you pay goes to building up the cash value which you receive dividends on. During the first 10 to 20 years of coverage, a whole life insurance policy's cash value is quite small, due to fees and coverage cost. The insured party should receive around 10% dividends on the cash value only but when deducting all the insurance companies administrative fees and commissions, the insured end up with dividends around 2.2% as reported by the consumer reports organization. Essentially, dividends are based on the performance of the company's financials, interest rates, investment returns, and new policies sold.
The cash value of your whole life insurance policy will not be taxed while it's growing. This is known as “tax deferred,” and it means that your money grows faster because it's not being reduced by taxes each year. The beneficiaries are only entitled to the death benefit while the cash value may go to the insurance company. Beneficiaries are usually the family members of the insured party or can even be a company.
------ Contents of This Video ------
00:00 - Introduction
00:53 - Whole Life Insurance vs. Term Life Insurance
01:22 - Whole Life Insurance
02:00 - Term Life Insurance
02:30 - Term Life Insurance Types
03:24 - Whole vs. Term Components
03:35 - Cash Value / Investment Component
05:07 - Whole vs. Term Premiums
05:25 - Whole vs. Term Life Insurance Example
06:34 - Term Life Renewal
05:32 - Annual Renewable Term Life Insurance
07:18 - Choosing between Whole Life and Term Life
Websites:
https://www.prudential.com/
https://www.statefarm.com/
https://www.newyorklife.com/
https://www.northwesternmutual.com/
https://www.transamerica.com/individual/
https://www.mutualofomaha.com/
https://www.usaa.com/?akredirect=true
Good financial decision-making is based on solid research and sound advice.
Don’t let financial advisors do the thinking for you because they only have one word in mind commission. The commission is what drives them to give you the best advice for them. Not you.
Let’s start with some basics, shall we?
Whole life insurance provides the insured party with a lifetime permanent coverage in exchange for level, regularly paid premiums. In the case the insured party dies, a death benefit is provided for the insurance beneficiaries. The important thing to know about life insurance is that it does not have an expiry date and has the potential to be used as an investment tool.
When premiums paid into your whole life policy matches the death benefit, it is considered to have reached its maturity date. Typically, insurance companies design policies to mature when you turn 100, but some recent policies even extend the maturity date to age 120.
Term life insurance which is sometimes referred to as pure life insurance provides the policyholder with temporary coverage for a specific term that may range between 10 to 30 years. If the insured party dies within the term, the policy beneficiaries receive the death benefit. On the other hand, there will be no death benefit if the term policy expired before the insured party dies. Nevertheless, the policyholder can have the option of renewing the term policy or even converting it to a whole life policy that does not expire.
Term Life insurance comes in several flavors including convertible, increasing, mortgage, and annual renewable. Each one of these types targets a specific need for potential customers.
Convertible Term allows the term insurance policy which typically has a limited number of years to be converted to whole life insurance before it expires.
Increasing Term allows the increase of death benefit as the time goes forward.
The Mortgage Term which is sometimes referred to as the decreasing term is the exact opposite of the increasing term. It's done in a way that the death benefit amount decreases over time. This is to match the death benefit with the decrease of the policyholder’s outstanding mortgage amount.
The last type is the annual renewable which each year renews the term insurance for a higher premium since the policyholder is a year older. The main benefit of annual renewable is that the coverage is guaranteed to be approved every year.
When it comes to the main components, whole life insurance is made of premiums, death benefit, and cash value while term life insurance is composed of only premiums and a death benefit.
The main difference is the cash value component in the whole life insurance which is sometimes referred to as a living benefit while the term life insurance is not worth anything unless you were to die during the term and that’s when you receive money.
Part of the premiums you pay goes to building up the cash value which you receive dividends on. During the first 10 to 20 years of coverage, a whole life insurance policy's cash value is quite small, due to fees and coverage cost. The insured party should receive around 10% dividends on the cash value only but when deducting all the insurance companies administrative fees and commissions, the insured end up with dividends around 2.2% as reported by the consumer reports organization. Essentially, dividends are based on the performance of the company's financials, interest rates, investment returns, and new policies sold.
The cash value of your whole life insurance policy will not be taxed while it's growing. This is known as “tax deferred,” and it means that your money grows faster because it's not being reduced by taxes each year. The beneficiaries are only entitled to the death benefit while the cash value may go to the insurance company. Beneficiaries are usually the family members of the insured party or can even be a company.
00:00 - Introduction
00:53 - Whole Life Insurance vs. Term Life Insurance
01:22 - Whole Life Insurance
02:00 - Term Life Insurance
02:30 - Term Life Insurance Types
03:24 - Whole vs. Term Components
03:35 - Cash Value / Investment Component
05:07 - Whole vs. Term Premiums
05:25 - Whole vs. Term Life Insurance Example
06:34 - Term Life Renewal
05:32 - Annual Renewable Term Life Insurance
07:18 - Choosing between Whole Life and Term Life
Websites:
https://www.prudential.com/
https://www.statefarm.com/
https://www.newyorklife.com/
https://www.northwesternmutual.com/
https://www.transamerica.com/individual/
https://www.mutualofomaha.com/
https://www.usaa.com/?akredirect=true
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