Term Vs Whole Life Insurance
Why Is Term Life Insurance More Affordable Than Whole Life Insurance?
The two main types of life insurance-term life and whole life are certainly at different levels.
Term Insurance is as it’s name implies, only carried for a period of time (a“term”) prior to expiration. But lot of individuals wonder why term life is so much cheaper than whole (once they’re made aware of it’s existence that is). Because of that lower cost, people wonder if it’s even worth purchasing.
That’s because they don’t understand why term life insurance is so much cheaper.
Basically, there are two main reasons that term life insurance is cheaper than whole life insurance. Below is a brief exploration of those reasons.
Term Insurance Is Not An Investment-
Whole Life builds up a savings and investment over time so in addition to the death benefits, there has been an investment and savings components as well, meaning that the insured can use that money for other things (such as paying part of the premiums over time).
But with Term Insurance, there is no investment portion- the pain is very simple- pay premiums and get a death benefit if the insured dies prior to expiration of the policy term.
However, if the term expires and the person passes away after that term, there is no payout. In must cases, the policy must be converted to either a whole life policy,or renewed at higher premiums for another term.
Don’t forget we are still on the Term Vs Whole Life Insurance let’s quickly take a rundown on more details.
This is one major reason that term life insurance is more affordable than whole life-the insurer has less involvement, and less risky, Term Vs Whole Life Insurance
lower Risks With Term Life- Term are going to be the least expensive, because the risk involved for the insurer is for less than with a long term or whole life policy.
In other words, an individual who purchases a 5 or 10 term insurance policy will be at a lower risk to pass away than a person who purchases a very long term policy or a permanent policy.
Whenever the insurer has a greater likelihood of having to payout, the higher the premiums will be in order to protect the insurer’s interests.
Additionally, the risk involved with carrying n investment and savings component drive up the cost of whole life policies as there are more cost on the part of the insurer and when there are more tasks to complete, the greater the cost which is passed onto the insured.
Essentially,Term Life Insurance tends to be less expensive than whole life insurance due to its simplicity. It does not carry the investment risks and payout of a whole life policy, but provides for a beneficiary or beneficiaries should the need arise.
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