The age-old question, when one is shopping for a policy, is whether to buy term life insurance or whole life insurance. Most major insurance companies offer both types, but will attempt to guide the consumer toward the whole life plans. Why? Well, for one thing, the sales commission for a whole life plan is better for the salesman. However, there are pros and cons for each of the types.

By general description, the whole life plan is one where the consumer purchases a policy that has a fixed face value, but can accrue additional value because the premiums are paid for the duration of the coverage, or to an older age (65 or 88). The premiums for such a policy are generally fixed, and do not escalate over time because of age. The premiums are also slightly higher than the price of a term life insurance policy. Most representatives will suggest, at least for younger people, that this is an excellent way to build a nest egg for the future. They might also hint that the value of the policy can be used as collateral for loans. Unfortunately, the growth rate is not spectacular, and the interest accumulation is slow over the life of the whole life plan.

It could be said that the higher premiums are actually an over-payment, and that one could do better financially by buying a cheaper term policy and investing the difference in a good mutual fund, provided the consumer has the discipline to do so. A term life insurance plan is one that, for the same face value, is less expensive to purchase than the whole life plan. However, the guarantee of coverage is only for a fixed period of years.

At the end of that time, the contract between the parties is considered finished, and a new policy would have to be written in order for the consumer to extend coverage. The new policy, of course, would have a higher premium, since the covered individual would be older, and the risk to the insurer would be greater at that point. Because of premium cost per unit of coverage is cheaper, a policy owner can buy more coverage for the same money. This can be important when one wants to cover an outstanding mortgage or college expenses for family members. There are, then, reasons for each type to exist.

A whole life plan can provide funds for last expenses (funeral/burial), and perhaps a small savings plan for emergencies. A term life insurance plan can provide larger dollar coverage for consumers needing to make sure that specific obligations are funded, in case of a premature end of life.

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