what is the difference between term, whole and universal life insurance?
What is the difference between term, whole and universal life insurance?
I'm looking for life insurance for my mom, she is diabetic type II. I just don't know what kind to get her in case something happens. She has been hospitalized several times this year
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3 Responses
2.1.2010
Contrary to what the previous poster answered, Type II Diabetes isn't as big of a concern as she would lead you to beleive. My mother is Type II and has high blood preasure to boot and she's been approved by 2 different companies for life insurance. Stopped reading it after that.To answer our question:Term insurance is like renting a house. It's good for a temporary need, cheaper than buying a house (whole life), but in the end you have no equity, so when you move out you get nothing back. Also with term your landlord will eventually jack up the rent (premiums will go up ever so often), and will eventually kick you out (cancel your policy at a certain age) and there's nothing you can do about it.Whole Life is like buying a house. It's a more stable choice for the long term and a more perminant need. It's more expensive than renting, but your premiums will never go up and the land lord can't kick you out (unless you stop paying your premiums, which is the same as term anyway). The longer you have it the more equity you build in it was well, so if you cancel the policy you at least get something back. Some companies also offer what's known as a "Limited Pay" option. This is like a mortgage,you make payments for 20 years (or what ever length of time you choose) and after that you don't pay anymore, but you keep the house (the policy).Universal Life is simply a hybrid of whole life. It has an investment portion to it where you can either increase the benefit amount or have it build in a seperate policy fund that grows tax sheltered. Given that it sounds like you're looking for something for just insurance purposes, don't even worry about this one…you won't need it. (sorry…haven't figured out a clever way to explain it with the housing analogy yet…haha)As far as which you should go with it depends on the need. Are you looking at covering things for a few years of something longer term. Term ussually works out to be roughly 1/5 the price of whole life, but if you're looking coverage for longer than 20 years you might be better off going with whole life.Your best bet is to contact a lisensed insurance broker that has access to whole life and term. they will have access to multiple companies and can take the details of your mom's health and such and go to each company and say "This is what I have for an application…hypothetically if I submitted this, do you think it would be approved, rated or declined?" and beable to make a recommendation for the company that will most suit your situation.If no one will approve it there is the option of gauranteed issue insurance, which does no medical underwriting, but it is VERY expensive in comparison to the products above. At least you will be covered though.Sorry…had to add this. Just reread the previous poster and I have to say that person is an AWEFUL source for information! Credit insurance is an aweful suggestion! They do underwriting at the time of claim, and given that there are health issues there would be a good chance that your claim would be denied as a result of a preexisting condition if you're even approved in the first place. Secondly, credit insurance will do nothing but cover the debts. It won't cover anything further like funeral expenses or anything that you would likely also be concerned with.I have searched and searched and have NEVER found a single article or source that has EVER recommended credit insurance over personal insurance like term. HEre are a couple resources that support this:Comparison of term vs. creditor (you can google search term insurance vs. creditor or mortgage isurance and find thousands of links that will tell you this same thing):http://www.asset-aid.com/bank_vs.shtmlTV exposee on credit insurance not paying out (specifically car insurance from dealerships)http://www.cbc.ca/marketplace/2007/02/cr…TV exposee on creditor insurance not paying out (specifically mortgage life insurance from banks)http://www.cbc.ca/marketplace/in_denial/ Source(s): Financial Advisor in Canada. If you're in Canada, let me know and I can recommend a good broker in your area.
2.1.2010
It's going to be difficult and expensive for you to find life insurance for your mother. Diabetes is on the the big red flags that make life insurers say, "Thanks, but no thanks."There are companies who may write a policy, but they are going to be very, very expensive. And the fact that your Mom has been hospitalized several times this year indicates that her health would not be a good risk.Let me answer your initial question about the different types of insurance.Think of life insurance this way: Term insurance is like renting a house – permanent insurance is like buying it.With Term insurance premiums start low and increase greatly as you age and each term (1 year, 5 years, 10, 20, 30, etc) renews. Often there is a point where you can no longer renew it (age 75, 80, etc.). It builds no cash value, so you get nothing if you cancel or the policy expires. You can, though, purchase a lot of insurance for very little money compared to Permanent policies. With Permanent insurance (Whole Life or, in some cases, Universal Life), the premiums are higher, but the policies build cash value. You can keep the policy forever as long as you pay the premiums.Some companies offer a Final Expense type policy, which is a small whole life policy (usually about $10000) that has fairly lax health questions. I know State Farm offers this type of policy, but I'm not sure she'd qualify based on what you said. You can call and ask. My Mom is bi-polar and I was able to get this policy for her.Another thing she can do is buy as much credit life insurance as possible. If she buys a car have her buy the credit life – it will pay off the car if she were to pass away. They don't ask any health questions. Also check with her credit card companies to see if they offer anything.Best of luck to you and your mother! Source(s): 15 years as an insurance agent, retired.
2.1.2010
I have met similiar problem before, here http://www.InsuranceFreeTip.info/insurance-for-free.htm is the information that I feel helpful..