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Texas Term Life Insurance Versus Whole Life

First it is important to understand the main differences between each Texas term life insurance and whole life insurance.  The principal difference between term and whole life insurance is how the coverage addresses the duration of insurance need.  Many consequences follow from this fundamental difference.  

Term life insurance addresses coverage based on an insurance need that diminishes with time as follows: (1) A death benefit compensates dependents with money for the loss of the deceased. With increased age, wealth increases, suggesting the possibility that the policy owner will eventually self-insure when wealth has risen sufficiently.  Also, with increased age, the financial need of the dependents diminishes. (2) Insurance replaces lost income. Eventually, in retirement, the policy owner will have no earned income to replace. All of these situations support the concept of term insurance, a time-limited product designed only to provide benefits in response to a mortality risk.

Texas whole life insurance is permanent insurance.  Although basic insurance need may be temporary, certain insurance needs may be permanent.  An individual wishing to spare others the expense of providing for his or her final expenses, including burial costs will need a policy in place at the time of death.  Since this time is unknown, only permanent insurance can fill this need.  A business owner may wish to perpetuate the business by providing partners the wherewithal to purchase the remaining interest after his or her death.  Again, this requires a permanent policy due to the unpredictability of the death date.  Lenders or investors may wish to cover the risk of losing a key person in the business to death.  This may require a permanent policy, depending on circumstances.  Specialized forms of whole life insurance have been developed to insure final expenses, business succession and to address the financial importance of key personnel.  Most estate-planning insurance needs are also met by whole life policies.

Ironically, the marketing history of insurance suggests that permanent insurance developed not because of objective need but because consumers believed that they were wasting their money by paying term life insurance premiums for years but receiving no direct benefit for the premium paid.  There is no obvious merit in this attitude.  Texas term life insurance buyers purchase a product on the pretense of “risk reduction.” The fact that this product is intangible is irrelevant, since many services share this attribute.  Moreover, term life insurance premiums closely track the actuarial cost of insurance, which is the amount of money necessary to accumulate the death benefit at a point coinciding with the statistically-estimated death date.

So which one is right for the consumer, term insurance or whole life insurance?  The settled verdict on the difference between term insurance and whole life insurance is that the choice should depend on the permanence of the insurance need.  In cases where insurance need is temporary, there is no reason to forego the potential economic benefits of term life insurance. Where a permanent need exists, whole life insurance is more suitable.  Many times the consumer will find there is a necessity for both products simultaneously in order to best protect the insured and family through the multiple financial stages of life. 

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