Term Life Insurance Texas: What is the difference between Whole Life and Term Life?

June 26, 2009

Term Life Insurance Texas: What is the difference between Whole Life and Term Life Insurance? We can answer your life insurance questions. Give us a call today! 512-996-8194 Or use our ”no obligation” quote application.

A Whole Life Policy Is Not Designed To Be Surrendered

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When you take out life cover, you should be committed for the long haul because a life policy is not designed to be surrendered. Always seek advice before you even consider cancelling a life policy.

This is advice from Robyn Farrell, managing director of 1st for Women Insurance Brokers and spokesperson for 1st for Women life insurance.

“Life insurance is not an investment and is not designed to be cashed in when you need extra cash. When you buy life cover you are buying long term risk protection. Cancelling your policy early leaves you without that invaluable risk protection and you don’t actually stand to gain anything financially unless there is a savings component linked to the life insurance product you have bought.

“In fact, even if there is a savings component to your life policy, there’s still a risk you’ll get little out if you surrender early,” she cautions.

Farrell explains that life insurance companies must cover all the initial costs associated with issuing a policy. These costs include administrative costs and the like, and they need to be covered whether the policy is kept for the full term or not. In order to recoup its money, an insurer will deduct these costs from the amount due to a policyholder who surrenders early. Because the admin costs to the life insurer are typically higher in the first few years, policyholders surrendering early should expect a greater deduction for costs.

“What this means is that you will get back very little or a lot less than the value of the premiums you have already paid. Very often, you will get nothing if you surrender the policy in the first year or two. It is also important to note that surrender values are not always guaranteed,” she warns. Farrell reiterates that an early surrender puts the policyholder at risk.

“The whole point of life insurance is to provide risk cover. Without that cover, you are wide open to the range of financial risks against which your life insurance policy was meant to protect you – and your loved ones.