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Term Vs Whole Life: The Great Debate

Which type of insurance is best - term or whole life? Both sides have pros and cons, but in many cases it comes down to the simple issue of cost.

For a young family struggling to pay the bills, term insurance is often the only affordable choice. The difference in premium costs for whole and term life policies of the same face value can be significant.

For example, the premium for a 5-year renewable and convertible policy for $100,000 on the life of a 40-year-old male non-smoker would initially cost about $200 a year. A Term-to-100 policy for $100,000 would cost $600, and a whole life policy such as Universal Life could cost almost $1,000 a year.

Vendors of permanent life insurance point out that the premiums will never rise as with term policies and this, coupled with the build-up of cash values, represents a favourably-taxed savings feature. Detractors suggest that you can earn a better yield by simply buying term insurance and investing the difference in premiums over the years.

Advocates of whole life insurance argue that whole life yields are improving, particularly with the advent of Universal Life, and that permanent insurance is a product geared towards different needs; it shouldn't be compared in terms of yield alone. For example, beyond age 65 or 70 (depending on a policy's details) you may have no choice but to buy permanent life because term is no longer available.

Both sides have merit, and the arguments continue. There is no easy answer as to which type of policy is best for each individual or situation. Cost is important, but your life insurance needs depend on additional factors and change over time. The best solution is often a combination of both types of insurance.

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