It is easy to get confused when comparing life insurance policies. If you have never purchased life insurance before, don’t let the insurance salesman talk you into anything without doing some homework first to determine what you really need. For starters, you need to decide between whole life vs term life insurance.

It’s pretty simple, really. Term life is only an insurance policy. Unlike whole life, the policy itself doesn’t build up a cash value. It isn’t worth anything unless you die and your beneficiary is able to collect the insurance. You can’t get any money by cashing out the policy when you no longer need life insurance.

A whole life policy is another matter. You see, if you keep paying the monthly premiums on a whole life policy, after awhile you will be able to cash it out if you choose to do so. You usually have to own the policy for a certain amount of time before it accumulates any cash value. After that, the policy continues to increase in value over time. It could amass a value of thousands of dollars before you reach retirement age, depending on when you start the policy.

It’s easy to be led to think that a whole life policy must be a better deal because you are getting something extra. However, that is not necessarily the case. It’s true that the term life doesn’t have a cash value, but the premiums are usually much lower as well.

Take a little time to compare the prices of term life and whole life policies and you will see what I mean. The whole life insurance is significantly more expensive. Most people look at that and think that of course it is more expensive because you are getting more – cash value in addition to the life insurance.

You see, even though the insurance salesman makes it sound like you are buying something extra by getting a whole life policy with a cash value, that is just not the case. The way whole life works is this: if you die while insured, your beneficiary gets the insurance but not the cash value. If you cash it out, you get the cash value but not the insurance. So what were you paying extra for?

Now consider what happens if you buy a term life insurance policy. You save money over the cost of the whole life, so why not take the money you saved and use it to purchase an investment, such as a mutual fund. You still have the life insurance coverage, but now you have an investment too, and since they are separate, your beneficiary will get both the insurance and the proceeds of the investment when you die.

Before you purchase any insurance policy, you should do the math yourself and determine which type of life insurance policy is best. Don’t just take my word for it, or the salesman’s either. If you evaluate both policies carefully, you will probably find that the term life insurance provides the best possible value for the money.

Life insurance can be confusing, especially if you don’t know the diffs between insurance types on the market. The types you’ll see most frequently are term and whole life, let’s compare whole life vs term life insurance, to ensure you get the most competitive term life insurance.