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What is the difference between whole and term life insurance?

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Whole life combines savings with a life insurance policy. Term life is just the policy and is generally much cheaper. A smart invester would never buy whole life until all other savings are maxed out (IRA's, 401K, etc.) and it is the last resort. David Bach (Author of "Smart Couples Finish Rich") says to buy Term Life Insurance and invest the difference. Many times with a whole life policy, your life insurance goes up and down inside of the policy. So you are saving very little over the years, certainly not enough to retire. Putting your money into a Term policy and the difference into an IRA or increase your 401K contribution is much smarter in the long run. Answer The significant difference between whole and term life insurance can boil down to the fact that at the end of the day, a term life policy offers only life coverage. Unlike whole life insurance that adds on an investment component. This in turn makes whole life insurance policies much more expensive. This extra cost might make sense if the investments assured rich pay offs. But this is not always the case. Marketed as retirement funds or forced savings, it has to be said that there are several more effective ways to invest your money. Many of these policies come along with commissions and high fees. In comparison, term life policies are inexpensive. And if you are smart enough to purchase your policy when you are young and healthy, the returns far outweigh the modest premiums.
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