Purchasing life insurance can be confusing due to the variety of products and the number of agents selling this type of insurance. A basic understanding of available insurance products can make the process less confusing. One particularly important concept to understand is the difference between term insurance and whole life insurance.
Term insurance is exactly what it says. It is life insurance that is bought for a period of time or a term. During that term, the rates do not change. However, at the end of the term, the rates will increase if the policy is renewed. There may also be a requirement that the insured person meet insurability requirements in order to renew a policy when a term expires. Term insurance allows younger people to purchase large amounts of life insurance at an affordable price. The drawback is the older the insured party gets, the higher the rates. The result is that term insurance becomes increasingly expensive with increased age which is also the time when it is most likely to be needed.
Whole life insurance, or permanent life insurance, is bought for a much longer period of time, possibly one’s whole life. Because of this, whole life insurance quotes are higher than term insurance would b,e but the constant payment amount results in lower premiums than term insurance would have at older ages. Another benefit of whole life insurance is that it accumulates cash value. This means that the policyholder can cash the policy in for its cash value or borrow against the accumulated cash value.
There are other considerations when buying insurance. First, it is possible to buy a life insurance product that is a mix of term and whole insurance. There are also a wide variety of riders that can be added to policies to provide extra coverage or additional benefits. Once the difference between term and whole life is understood, the best place to go is to a reputable agent to learn about what is available and to purchase the right product for the circumstances.