Differences of Term and Life Insurance in Los Angeles, CA
ByQuestion:
I’ve been looking to buy my first life insurance policy and I wanted to know, what’s the difference between a Term Life and a Whole Life Insurance plan? Also, how is life insurance different from health insurance?
Cheryl,
Los Angeles, CA
Answer:
First, health and life insurance have two basic differences. A health insurance policy gives you financial support in case of serious injuries, sickness, dismemberment, and even compensate for loss of income, but you still need to be (more or less) alive in order to get the benefits. Life insurance would normally take effect upon the insured individual’s death, and only then can the benefits be awarded to the designated beneficiaries. Life insurance policies fall under two main categories: Term Life and Whole Life coverage.
Term Life Insurance
A type of life insurance policy that is only meant to be kept for a certain number of years (5, 10, 15 yrs.), and is therefore temporary in nature. This kind of coverage is best for those raising a family, paying mortgage or loans, or someone who has a stake to the financial well-being of a business, among others. Term Life policies usually have very affordable and stable rates, however, there are no savings and income-generating features, and rates may become significantly higher should you decide to renew the policy.
Whole Life Insurance
This is a permanent form of life insurance coverage that is meant to be kept for the entire duration of someone’s lifetime. A Whole Life insurance has more features, aside from life coverage, such as: income generation, investment options, and interest earned on the Cash Value of your policy. Premiums usually start off high and eventually gets cheaper and more stable as the years progress. You get coverage while gradually building and preserving your wealth (tax-free until your death) and may even be used as a loan collateral.
The best way to choose which kind of policy suits you better is to understand your specific needs and circumstances at this stage of your life, and basically know why you want/need to have life insurance. If you want a big amount of money waiting for you or your beneficiaries in the future, consider whole life. If you are still young and want to protect your dependents for only certain period of time, term life may be more beneficial.