A typical term life insurance policy provides only life coverage, whereas the whole life term policy combines a term policy with an investment benefit. In the case of term life insurance, if the insured dies the policy pays a fixed amount to the beneficiary. It can be purchased for periods ranging from 1 to 30 years.

The whole life term policy would include an added investment in various options like bonds, stocks or the money market instruments.

The three most important forms of whole life insurance are traditional whole life policies, universal life insurance and variable life insurance. With any of these policies you can lock in the same monthly payment over the life of the policy.

Forced Savings

With whole life policies you are paying for the insurance as well as the investment portion, and hence they are usually more expensive. It would be sensible to pay for that extra portion if these investments were worth it, but unfortunately in most cases they are not. Certain agents like to emphasize the fact that these are retirement plans.

But actually there are many more methods to save for retirement and these policies come with huge fees and commissions that often result in you losing money. These costs sometimes reduce investment returns by as much as 3% annually.

Also adding to the burden are other upfront commissions which take up 100% of your first year premium. It makes it more disadvantageous to not know how much of your money is going towards insurance and what part of it is going to investments.

The premium that one needs to pay is significantly less for those who are in good health and are below 50 years of age. The premiums keep increasing thereafter.

However, those over 60 years old have no option other than to buy the whole term policies. Most companies simply do not sell term policies for those older than 65 years.

Whole Life vs. Term Policies - An Example

In order to get a better picture of term and life policies, let’s look at a quick example.

With an annual premium of $3,000 and an insured amount of $250,000, an investment with a 5.7% return would have a cash value exactly equal to zero.

But if the same amount were invested in term coverage of 20 years with a fixed premium of $350, which would have been further invested in a mutual fund which gave a return of 10% annually, and he would have saved $2,841 and accumulated a whole $46,000 after tax savings.

Thus the cash value of the policy would be $31,819.

That doesn’t necessarily mean that whole term policies are useless, because they can effectively be used to plan estate taxes with the returns of their policy.

Whole Life Policy

Only an expert can tell if a whole life policy is giving you a good yield or not.  James Hunt, actuary for the Consumer Federation of America, has analyzed from his research and concluded that these policies result in hardly any yield unless held for 20 years more.

So in case one decides to buy one be prepared for a longer hold period. The internal rate of return on any policy can be calculated as the difference between the yield of the policy and the commissions and fees paid.

An in-depth analysis will determine if there is an absolute return from the investment that is competitive. Many financial planners could help you to calculate the return on your investments easily with a few calculations.

Retain Your Policy While Considering New Ones

In case you were wondering if you could get rid of your older policies for cheaper ones like the recent term policies, then think for a while, because your older policies actually start giving decent returns after a period of only 10-15 years. You need to keep in mind the amount that you have paid all these years.

In order to enter into any other policy you would also need to examine yourself medically to make sure you are fit. If you are over 50 years of age and smoke or have any health problems it would be cheaper to retain your older policy.

Rating Insurance Companies

In case you want to hold your insurance for a longer period, it would sensible to find a stable and sound company. Many credit rating agencies rate these companies, and it’s information you should look at before making a decision on life insurance policy.

Ratings typically range from AAA to BBB or even worse. So you would want to thoroughly evaluate this before doing any further transactions with the company. Ratings are typically based on the financial condition of the agency.

By 1769 the Episcopalian ministers had organized a similar fund. From 1787-1836 26 companies began offering life insurance to the general public, but they didn’t tend to stay open more than a couple of years and sold very few policies. Few companies managed to survive and experience success in this line of business.  It wasn’t because they were offering Cheap Life Insurance; it was just a difficult business back in the early years of the US.

They were the Pennsylvania Company for Insurances on Lives and Granting Annuities, The Massachusetts Hospital Life Insurance Company, the Baltimore Life Insurance Company, the New York Life Insurance and Trust company and the Girard Life Insurance, Annuity, and Trust Company of Pennsylvania.

Even though the Life Insurance companies had a very slow and rocky start they began to make a significant difference beginning in the 1839’s. Life insurance policies began growing steadily from about $600,000 in 1830 to just under $5 million a decade later, with New York life accounting for more than half of the $5 million amount.

Over the next five years insurance almost tripled to $14.5 million and then by 1850 reached just under $100 million with the insurance spread amongst 48 major companies. Life Insurance Companies’ sudden success caused two major developments - changes in legislation impacting life insurance and a shift in the corporate structure of companies towards mutuallization.

Life Insurance companies had a target market- women and children, who would serve as the main beneficiaries of these policies even though the majority of women were prohibited by law from accepting the protection offered in the event of the death of their husband.

Married women couldn’t enter into contracts on their own and therefore couldn’t take out there on policies and “affection”- or a husband and wife relationship was not enough to grant on monetary interest in one’s life upon death or accident.  In this era, it was difficult to find Afforable Life Insurance.

The only way around this was for the husband to take out the policy on his own life and assign his wife or children as beneficiaries- this too was flawed as the policy was considered part of the husband’s estate and was then allowed to be claimed by anyone the husband owed money to prior to death.

The 1840’s also brought with it the boom in the mutual life industry. This was not a new concept, and allowed annual profits to be redistributed to the policy holders rather than the stock holders. Mutuals were easier to obtain requiring very little initial capital and relying instead on high paid premiums and from high volume sales to pay any death claims.

After the civil war many legislative laws governing life insurance and mutual funds changed- and the purchase of life insurance policies began to climb totaling around $600 million. By the twentieth century, individuals had purchased around $117 billion of life insurance policies, and they were still growing strong.

It is helpful as security coverage for your loan because if you die before repaying the loan completely, the company that provides you with the insurance will repay the outstanding balance on the loan. And if you are able to successfully repay your loan the policy will expire immediately. These type of policies are not popular in the long term as life insurance coverage; they do provide good coverage for short term.

Decreasing term life insurance is generally purchased by individuals who look for higher face value insurance in the beginning and less value later on. The premium that is paid on these insurance policies remains same throughout the term until it is renewed. The face value of the decreasing term life insurance policy does not drop, making a huge difference with a single change. It changes slowly over a period of time.

For the first few years the difference in the face value will be small. Some of the companies offer Life Insurance where the face value does not change in the first few years. Many of the insurance providers offer conversion options like, when the face value is expected to drop too low; the insured has an option of converting the policy into whole life policy.

The premium paid on decreasing term life insurance is less as compared to whole life or other term policies because, the risk of the insurance provider company in decreasing term insurance policy decreases as time moves on. But it is not the case with other type of term policies where the risk increases with the age of the insured. Decreasing term life insurance does not accumulate wealth like other term policies, so other methods can be better for getting Cheap Life Insurance.

But, some providers do give you a saving option where you can save money for your retirement. These savings does not become the part of the face value of your term policy. Should you die before the policy expires, the beneficiary of the policy will get the face value of the insurance tax free, but he will be paying tax on the interest accrued in the savings fund. To get maximum benefit out of such term policies you need to look for term insurance with minimum death benefit. Then your face value will not drop below a specific limit as long as you keep on renewing your term policy premium.