The decision to make sure your family are financially secure in the event of your death is a sensible one. Following bereavement, the initial shock of sadness can be met by the shock of debt and costs that the bereaved are unable to meet. The security afforded by an appropriate life insurance policy might give the tangible benefit of money in the event of your death, and will certainly provide you with peace of mind knowing that you are covered. However, deciding on which type of life insurance to purchase can be an important dilemma. Policies can differ substantially, however the major difference to be aware of concerns whole life insurance as opposed to term life insurance.

Whole life insurance involves the purchase of cover which is essentially an investment. Though it tends to cost more than term life insurance, whole life insurance represents cover that has cash value, and this value can be invested in stocks and securities that can reap further value that will cover you for the long-term. The higher value of the premium is the cost; the potential gain from interest is the benefit. One obtains the peace of mind of knowing your family will receive a sum that could be substantially more than it was originally, if the investments you have chosen reap dividends.

In contrast, term life insurance represents ‘purer’ cover that does not have cash value in the same way that whole life insurance does. One takes it out for a specified period of time and it is generally used to cover specific costs such as a mortgage, or children’s school or university costs. Though the premiums are less than those for whole life insurance, one does not have the potential to gain through these policies: if they are terminated or cancelled, then they have no cash payback. One does, however, obtain peace of mind that in the event of your death specific expenses are covered.

So which policy is best for you? Your circumstances partly dictate this. If you can afford whole life insurance then it may be that this is a sound investment: the potential for its value to increase over time may be lucrative. Alternatively, it may be that this form of investment is actually less lucrative than taking out term insurance and investing the money you save from not taking out whole life insurance in whichever investments you choose. Gathering sound financial advice that takes into account your budget and the propensity for different forms of investments to pay off would be advantageous.

Some short-term circumstances may make the lower cost and flexibility of term life insurance beneficial. Young couples with substantial debts owed to mortgages and childcare costs, or older couples near to paying off their mortgage or facing their children’s university costs are examples of people who might benefit from the short-term, flexible nature of term life insurance. In contrast, whole life insurance may be favourable for those without such pressing short-term concerns, who seek cover in the long-run against a spread of less closely defined debts and costs.

Thus the decision is one that requires sound thinking and an awareness of the costs and benefits of each type of policy. A good financial advisor would be able to help you go through this process and find the best form of cover given your circumstances.