When choosing different types of life insurance there are two main categories to consider:
1. Term life insurance. This type of life insurance covers the insured person against death during a specified period (or term). The policy will only pay out for death (or for some policies terminal illness) within the insured term.
2. Whole of life (whole life) insurance. This type of insurance is intended to pay the insured amount whenever you die (be that 1 year after the policy was take out or at the ripe old age of 101!). This type of insurance policy is therefore a hybrid insurance/investment vehicle. The policy will build up an investment value in its later years to provide for the final death payment.
Looking at the differences between the above it is easy to see why term life insurance is so much cheaper (which is its main advantage over whole life insurance). In the case of term life insurance the insurance company is taking a gamble on whether you will die during the insured term. A lot of term life insurance policies will not pay out anything to the policy holder. In the case of whole if policies it is a case of when the insurance company is going to have to pay out the insured amount - they will have to pay it whenever you die.
Term life insurance can be very useful for younger people that want to arrange substantial life insurance cover for a specific period (e.g. the time when they are responsible for children in education). This is because the premiums can be 10% or less of the equivalent whole life policy premium.
Tags: Life Insurance, life insurance comparison, Term Life, Whole Life
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