There are two primary kinds of life insurance policies, term life insurance and whole life insurance. There is plenty of debate over which type of coverage is better, but many experts feel that different plans are preferable for customers at different times of their lives. Perhaps the major differences between term and whole life insurance are liquidity and price. If you have an inexpensive term life insurance policy instead of a pricey whole life policy, you can use the money you are saving to help you diversify and expand your full financial portfolio. The flexibility of a term plan often makes it ideal for people who are paying off mortgages, have education related debt, or are planning to make a big purchase such as a new car or a large boat.

The price of term insurance is calculated in relation to the age of the policy holder so that a younger customer will tend to have a low monthly payment whereas an older customer may be writing a hefty check each month. This means that, although term insurance is more fiscally attainable for younger people than whole life insurance, term life insurance is usually quite a bit more expensive for older customers than a variable or universal whole life insurance policy. Because whole life insurance takes less of a bite out of older consumer’s checkbooks, people who are not planning on making any large purchases and have paid off most of their debts are often better served by a whole life plan than by a term life plan.

Many people, especially those who have agents to guide them through the process of buying a life insurance policy, will never need to know about the intricacies of how these two forms of life insurance differ. However, there are situations where having a sense of how term life insurance is better than whole life insurance in some ways and worse in some others can be very useful. If you are shopping for a life insurance policy, knowing the ins and outs of when each of these policies is appropriate for a customer can help you determine which kind to choose. If you are re-evaluating how effectively your current policy serves your financial needs, knowing the full spectrum of alternative options will help you gain perspective. If you are the beneficiary of a loved one’s life insurance policy, understanding what kind of policy they have will help you anticipate what you can expect when it is time for you to collect. In any of these cases, a little bit of education about what makes term life insurance different from whole life insurance can go a long way.

In today’s post we’ll go over the basics of life insurance, how it works, and the two basic types of life insurance available.

Life insurance offers every consumer a way to take care of their loved ones for years to come in the event of their demise. The basic idea of life insurance is that during an insured person’s lifetime, he or she makes monthly payments to an insurance company.

When the insured person passes away, the beneficiaries of his or her policy, usually immediate family members, make a claim and the insurance company writes them a check for the value of the policy. In many cases, the amount the beneficiaries receive is higher than the amount of money the customer put into the policy.

There are two basic kinds of life insurance (and many variations within each). The first, called term life insurance, is bought for a fixed period of time at a fixed premium. It includes nothing above or beyond a basic death benefit. This is an increasingly popular form of life insurance. The second kind of policy, known as a whole life insurance policy, is a bit more complicated.

A customer contributes to his or her whole life insurance policy on a monthly basis for the duration of his or her life. The premiums fluctuate over time, and tend to follow a gentle upward curve as the customer ages. In addition to including a basic death benefit, whole life insurance includes an investment component that is meant to help the customer grow his or her wealth. This makes whole life insurance substantially more expensive than term life insurance, but many people argue the increased fees are worth it because you get more for your money.

How much life insurance you need has quite a bit to do with how much you can afford to spend on a life insurance premium each month; but it has equally as much to do with how much coverage your family’s lifestyle and situation requires you to have. It is a good idea to try to provide your beneficiaries with a policy that will offer them enough to cover your funeral expenses and to continue to meet their living expenses for as long as possible without facing financial hardships.

There are multiple worksheets available online that can help you make an educated estimate as to how much coverage you should aim for, but it is crucial that you discuss your situation with an experienced and trustworthy professional before you make any firm decisions about what kind of life insurance policy to purchase.