Term vs. Whole Life Insurance: What’s The Difference?

By Cloud Control Panel on Tuesday, 22 September 2015. Posted in Whole Life 101

Choosing your life insurance policy is a big decision, one that shouldn’t be taken lightly. You want a policy that will suit your needs for its duration, making sure your loved ones are taken care of should something unforeseen occur. But a policy that works for a 28-year-old new father isn’t what a retirement-minded businesswoman will need. Your policy has to be tailored specifically to your needs, be they covering a newborn’s upcoming expenses, making plans for the end of a life or career, or something in between. Getting the wrong plan could be costly for you–and even more costly for your loved ones.

There are two main types of life insurance policies: term and whole life insurance. No type is strictly better than the other–both provide distinct benefits to the insured, and millions rely on them for coverage every year. But what separates the two? What are the benefits and drawbacks of each? And most importantly, which type of policy is right for you? Here’s a breakdown of the major differences you’ll find when looking at term and whole life insurance policies.

The Basics 

Quite simply, a term life insurance policy is temporary, but a whole life insurance policy is permanent. Term life policies usually last 10, 15, 20 or 30 years, with premiums fixed for the duration of that time. Whole life policies will last the entire remaining duration of your life.

Death Benefits 

A death benefit is an amount of money paid to a beneficiary you name in the event you should pass away. Both term and whole life insurance policies offer death benefits, but the duration of your policy will affect your coverage. If you have a term life insurance policy, your beneficiaries will only receive death benefits if you pass away while the policy is active. If the policy is canceled, your beneficiaries receive nothing. Since a whole life policy lasts until your death, your beneficiaries are guaranteed to be covered.

Premium Pricing Whole Life versus Term

One of the most significant differences in life insurance plans is the price of your premium (the amount you’ll pay monthly or annually in order to keep your policy active.) Since they’re not permanent, term life policies have an initially lower premium, allowing you to get the coverage you need at an affordable price for the duration you set. However, when the duration of your term life insurance policy runs out, renewing it will come with a higher premium than before. This means that a term life policy is great for relatively short periods, but if you’re planning for the long term, you’ll find that a term life policy will eventually become very expensive.

Whole life policies are initially much more expensive than term life policies. However, you’ll find that the premiums on whole life policies are also fixed for the duration of that policy. The premium you agree to when you begin your policy is the premium you’ll be paying decades into the future! Most whole life insurance programs will allow you to keep your fixed premium until you reach age 100. If you know you’ll need a life insurance policy well into the future, getting whole life insurance is a great way to keep premium costs manageable.

Do You Need Cash Value? 

The presence of cash value in whole life investments is a major advantage for anyone looking to plan for the future with their policy. Cash value is an amount of money you’ll be offered if you decide to cancel your policy in the future. As you pay premiums throughout your life, your insurance carrier will invest a part of that money in a savings plan. If at any time you decide to cancel the insurance plan, you’ll receive the cash value in return. The longer you have a whole life insurance policy, the higher its cash value will be, making it a smart investment for the future and a great way to cover any unforeseen needs you may have.

It’s critical to decide early on if you want your life insurance policy to have cash value, because while they’re a key feature of whole life policies, term life policies actually don’t have them, and are death benefit-only. If you want to invest in the future, you’ll want to seriously consider the benefits of cash value in your policy.

Which Kind Of Policy Is Right For You? 

Term and whole life insurance policies both have their benefits and drawbacks, but only one is truly right for your specific needs. So which is it? Here are some helpful guidelines to make your decision easier.

Have you got a child looking to go to college? Do you have a mortgage to pay? Are you looking to add a new member to the family? If so, a term life policy is right for you. Term life policies are much more affordable initially, making them easier for younger people to pay off, and their flexible duration allows you to tailor a policy that will give you great coverage only until you no longer need it, so you don’t waste money. Use term life policies to cover short-term expenses, and only if you know you won’t need to be covered once the policy expires.

If you’re looking to save for an upcoming retirement, invest early in your future, plan for your passing, or cover any circumstance you might have with an indefinite ending, whole life policies may be right for you. While the initially higher premiums may be off-putting at first, the fixed premiums will offer you the stability and freedom you’ll want as the years go by, and having access to the cash value of your policy will provide you with peace of mind, knowing that no matter what happens, you’ve got it covered.

Choosing your insurance is a big decision. Let us help you with it!

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