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Difference between term life insurance and whole life insurance

IT职场 作者:leniz 时间:2017-05-07 10:38:16 0 删除 编辑

The main difference between term life insurance and whole life insurance is that term life insurance serves as insurance only, whereas whole life insurance is actually insurance plus investment.

term life insurance policy has 3 main components - face amount (protection or death benefit), premium to be paid (cost to the insured), and length of coverage (term). The policy expires at the end of the term. If the insured person dies during the term of the policy, the beneficiary is paid the benefit (face) amount. If the insured person is alive after the term (duration) of the policy, no benefit is paid and the policy expires. So in a sense, it is like car insurance, where if you have a six-month policy and you get into an accident during this period, you get compensation from the insurance company. But at the end of the period if no accidents happen, you do not get any money back.

Whole life insurance on the other hand is a form of , which means that in addition to insurance, the policy also has a savings component. A part of the premiums paid by the insured person goes towards , while the remainder is invested and builds a "cash value". If the insured lives beyond the policy expiration, the cash value is paid out to the insured. The cash value can also be used to borrow money against. The cash value is invested (in  or money-market instruments), and therefore there is a gain. This gain is tax-deferred if the policy is cashed in during the life of the insured. (If the insured person dies, the proceeds are usually tax-free to the beneficiary.)

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