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
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.