When the Tax Equity and Fiscal Responsibility Act became law in 1981, it changed the face of insurance. Fewer people wanted to put their money in the life insurance products that they had been buying—the ones that are permanent, when they might be able to put their money in the market and actually get a much better payout.
People started investing their money and chose term life insurance instead of whole life insurance.
Term life vs. Whole life
When it comes to benefits, term life and whole life vary wildly. With whole life, you have a chunk of money, which is protected from taxes, and the money is available for use in retirement planning. Term insurance does not have this option. There is no money that can be used until after the person has died. In order for anyone to benefit from that insurance, the person the plan is for has to die.
There are a number of riders that can be added to whole life insurance. One notable rider comes in the form of accelerated benefits, which allow a person who might be dying from an illness to use their life insurance benefits. Term will not provide this option.
Term policies are often also called temporary life. You pay a fixed premium for a certain number of years, but as time goes on, those payments will continue to increase and increase, no matter what you do. In some circumstances, this can make what was once the better choice, what was once the better policy, far too expensive. Eventually, the policy may just terminate, if it has not paid out, at which point, if the holder dies, they will have no life insurance.
Whole life does not have an ever-increasing premium. In fact, these policies will stay level and will not terminate, so it is always around when the holder needs it. The first year is usually the hardest when it comes to paying these premiums, but afterwards, whole life insurance usually becomes the better option, especially because it pays out dividends to the people who have these policies. Term life insurance has absolutely no benefits that come anywhere close to this.
