Life insurance provides valuable protection for survivors after death. Policies can vary dramatically and each offers distinct benefits to their policyholders. Only by making comparisons between similar policies, or by making apples-to-apples comparisons, can individuals determine which may be most appropriate or beneficial to them or their beneficiaries’ needs.
Term Life Insurance
Term-life insurance is a popular type of insurance that has no cash value, and the policy has a specific end date. The policy may end at the end of its term, or it may require regular renewal. If the policyholder dies while the policy is in effect, his or her beneficiaries will receive the policy’s full face value.
Whole Life Insurance
Unlike term life insurance, whole life insurance does not expire. The premiums remain stable throughout the life of the policy, which never needs to be renewed. The value of the policy grows as long as the premiums are paid, and the balance will earn dividends.
Other Policy Differences
Life insurance companies frequently request health information in order to better assess the risk associated with a particular applicant. Their underwriters will assign a risk rating, which will determine the premiums that applicant will then pay if he or she accepts the policy. A medical exam provides the most comprehensive information about an individual’s health, and young, healthy applicants will generally find life insurance with medical exams to be the most affordable options. However, those who have serious health issues, who are smokers or who are over 50 may find guaranteed-issue life insurance policies to be a better option. Guaranteed-issue life insurance policies are issued to all applicants regardless of lifestyle factors, health or age. Because the risk is assumed to be greater, premiums tend to be higher.
Comparing Apples to Apples, or Apples to Oranges
When choosing the best policy, it is essential to compare similar policies. A guaranteed-issue life insurance policy cannot be accurately compared to a policy that requires a medical exam since premiums and coverage can vary widely. Similarly, term and whole life policies should not be compared since premiums for term can be inexpensive at the beginning of the policy and then later climb while the premiums for whole life remain stable throughout the life of the policy. Coverage is also different: Term life tends to be limited in scope while whole life is often considered both an investment and a life insurance policy.