Q:

What is the difference between standard and term life insurance?

A:

Quick Answer

The chief difference between standard and term life insurance is that standard insurance builds up equity, while term insurance has no cash value when the term expires. For this reason, standard insurance is generally more expensive to purchase, especially for younger people.

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Full Answer

A term life insurance plan is simply an insurance plan against the probability that the subscriber dies within the term of the plan. Terms are generally measured in years, and may extend for 5, 10, or even 20 years. Since these plans are effectively betting against the probability of death, term life for younger people is much cheaper than term life plans for older individuals. Many term life plans can be renewed upon expiration of the term, but the older the subscriber gets, the higher the premiums.

A standard or whole life insurance plan combines this aspect with a tax-deferred savings program. Part of the premium is directed toward a term-style insurance against unexpected death, while the remainder of the premium is invested and generates equity for the subscriber. Many of these plans feature a mechanism that allows the covered person to cash out their benefit in certain situations. If the insured dies while under the protection of the whole life plan, the insurance plus the accrued equity is paid out to the survivors.

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