Life insurance comes in two main types, whole life and term. Both serve the main function of paying a death benefit to your beneficiary in the event of you demise but from there they differ completely. Each type offers advantages and disadvantages and each was created to serve different purposes. It is important to understand the differences and purposes of each before making that all important decision of which to choose.
Term Life Insurance
Term life insurance is a policy set for a specific period of time. The amount of time or term of this type of policy can be from 1year to up to 20 years. If you die before the policy expires your beneficiary will receive your death benefit however if you do not there is usually no return on the investment. I say usually because there is a recent policy created that does indeed offer a return on at least a portion of the investment called premium return term life.
Term life insurance policies are most often used as a short term effort to make sure certain things will be taken care of. For instance you may choose a 5 year term life policy when your child starts college to ensure that the funds are available for him or her to finish. Or you may choose a 20 year term life insurance policy to cover your mortgage. Term life is normally less expensive then whole life policies.
Whole Life Insurance
Whole life insurance is a completely different style of policy. If term life is the stripped down economy car of insurance then whole life is the fully loaded luxury car. Both policies will get you where you need to go but whole life has many more perks. It is also more expensive than most term life policies.
A whole life policy is a cash value policy. What that means is unlike term life which only has value in the event of your demise whole life is actually worth something while you are alive as well.
A whole life policy is a lifetime policy. Even if you live to be 150 years old as long as you continue to pay your premiums your whole life insurance policy is yours. The premiums you pay today will also remain the same for the life of the policy. So if your premium is $10 a month now it will be $10 a month when you are 150 as well.
With a whole life insurance policy you have the option and ability to cash out your policy for the premiums you have paid in, sell the policy to another, or borrow money against the policy from the insurance company without losing the policy if you need to at any time during the life of the policy.
Most whole life insurance policies also offer what is called dividends. When the insurance company makes enough they actually pay you an interest rate against your premiums every year. This money can be left with the insurance company to build more interest, taken as a cash payment, or used to buy additional paid up insurance.
Whole life insurance also cannot be canceled by the insurance company even in the event of a serious illness. That fact alone is comforting. You can also have a look at buy life insurance uk to know more about insurance policies and what they are offering to you.