Life Insurance as Passive Income - Whole Life versus Term Life



Life Insurance can be a form of passive income. Understand Whole Life versus Term Life Insurance Though. Getting life insurance is not only an important financial decision, but also a responsible one. Taking this step ensures that your family will be financially secure in the event that anything untoward happens to you.

Life Insurance Types

Unpleasant though the idea of death may seem, it is necessary to look at and understand the various life insurance options and make your decision. There are two primary options for the insured – term and whole. It is often confusing to determine which one to opt for. To lessen the confusion, let's review each type in detail.

Term Insurance Vs Whole Life Insurance – The Differences

Term and whole life insurance plans differ from each other in the following respects.

  • The Coverage Period
As the name indicates, term insurance is a plan that covers you for a particular term, which could vary between one and 30 years. Whole life insurance covers you for the entire life.
  • The Concept
Term insurance is life insurance in its simplest form. You pay a certain premium to the insurance company during the term of your coverage and the company in turn insures your life for that period. Your beneficiaries receive the ‘death benefit’ payment only in the event of death during the term. If you outlive your insurance term, you receive nothing from the insurance company

Whole life insurance pays out the death benefit at any time death occurs, after all, the whole life is covered. Also, whole life insurance has an additional investment element to it. So your financial benefit is higher, as the insurance company is investing a part of your policy fund and that is earning interest for you. Eventually, you get this ‘savings’ from the company.

  • The Cost
Term insurance is relatively inexpensive as compared to whole life insurance. But more important than the cost is the value the insurance policy provides. In term insurance, there are no receivables at the end of the term despite regular and periodic premium payment. On the other hand, since whole life insurance combines insurance with investment, you are assured of receivables, even though the initial cost is high. Also the investment component of your whole life insurance plan can be used as collateral on loans and for other purposes.

Term Vs Whole Life Insurance – Which is better

As with most of life’s questions, there is no straightforward answer to this. The right kind of insurance for you depends on your specific needs and your insurance objectives

Term insurance may be ideal if you are looking at affordable protection for your beneficiaries in the face of untoward occurrences. But, if you look at insurance more as an investment option and you can afford to the pay the long term premiums, whole life insurance is ideal for you. Under the broad umbrella of whole life insurance, there are several types available like the ‘variable’ and ‘universal’ insurance policies depending how your policy funds are invested.

Insurance is an important financial decision. Ensure that you understand the pros and cons of each type of insurance product and look at the best products available for your needs.

Now on the flipside of buying life insurance is the notion of investors buying the policies of the insured which is called life settlement investing. That article describes in full how investors can achieve low volatility, high yield returns that are somewhat predictable based on demographic and actuarial information.

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