I often get asked the question: what is the difference between whole of life and term life insurance? There are very important differences that you need to be aware of and how it affects the premium that you pay.
Before we go into the different types, I want to explain the purpose and importance of life insurance. Life insurance is an insurer taking a monthly premium to insure your life. This means that when you die, they will pay out the sum assured indicated on your policy schedule. Most people see this as a grudge purchase as you may pay premiums that increase every year for a long time, and you are not likely to see if it will ever come to the full value. This brings me to the point that the reason you take out life insurance is not for you. It is for the people you care about. Covid-19 highlighted how quickly things can change, and the risk of you dying can change in an instant. It is for that reason, that life insurance plays a valuable foundation of your financial plan. There is no purpose in having a fantastic financial plan creating the future you want for your family, and if you are no longer there, that plan falls flat.
Term life insurance
If you only need insurance for a short period of time, term life insurance may be suitable for your needs. After a period, the life cover will terminate, and you will no longer pay premiums for this. The problem is that after this period, you may not qualify for underwritten life insurance.
Whole of life insurance
If you need your life insurance for a longer period of time, or to make provision for estate costs or assist your family to replace your income when you are no longer there to provide for them, whole of life cover can work in your favour in this instance.
Life insurance should not be viewed as a grudge purchase, but rather part of your financial planning strategy. In most instances, life insurance is probably one of the best returns on your investments, if you structure your insurance correctly.
Want more information?
For more on this topic, you can listen to the eRadio podcast episode 7 here. You can also view the Private Property Podcast where I explain the top three things you need to know about life insurance. You can view that podcast here.