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Veteran business correspondent Karen Gibbs answers your personal money questions and addresses current topics that affect YOUR finances on a daily basis. Karen is the financial expert in your corner--no question is too basic or too small. Karen boils down the issues simply: here's what you need to know, and here's what you need to do. Send your money questions to and post your comments below.



Term Insurance Vs. Whole Life

Karen Gibbs

Hi Karen, I’m looking at insurance and want to know the difference between term insurance and whole life.

- Thanks, Steve from Waldorf.

 Life Insurance Policy

Steve: thanks for your question.  Term life insurance is coverage for a specific time payable upon death.  If you are alive at the end of the contract, you get zero, nothing.  There is no cash value that accrues.  But term life insurance offers the maximum coverage for the lowest price.  Its best to purchase it when you are young as the premiums become more expensive as you age.


Whole life insurance is a policy that gives you death benefit coverage plus an investment/savings element, where the cash value of the policy increases every year.  Whole life insurance premiums are more expensive than term insurance because of those elements.


There is another form of life insurance called universal.  It is a more flexible insurance vehicle than either term or whole life.  Universal policies separate the insurance part from the investment part and give the policy holder flexibility with respect to premiums, death benefits and the accumulated cash value.


Before you choose which policy is best, make sure you need life insurance.  Are you married?  Do you have children?  Are you a caregiver for someone disabled?  If you answer “yes” to any of those questions, you need life insurance.  Insurance can provide cash upon death to pay funeral expenses, debts, estate taxes as well as provide for dependent support. 


Do you have health issues that may make you uninsurable despite the Affordable Care Act?  Whole life insurance can’t be cancelled once contracted, as long as premiums are paid and are up-to-date.


Once you’ve determined you need insurance, the next step is to determine how much coverage is desired.  According to the National Funeral Directors Association, the average cost of a funeral ranges between $7,000 and $10,000 in 2013.  Add to that probate costs and estate taxes along with any remaining personal debt, including medical expenses.


Next, how many years will your dependents need financial assistance?  How much annual income needs to be replaced?  Are you looking to cover tuition costs for surviving children?  Are there any other one-time costs such as a wedding or home repair you want to cover?


Now, compare premiums for the total amount of coverage you need.  For most families, term insurance is the better option.  However, if you want the investment option, or need help in setting aside savings, whole or universal may be for you. 


For more assistance on life and other insurance matters, go to the Maryland Insurance Administration’s website at:




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