There are many types of life insurance policies available on the market and it can be difficult to decide which one is right for you. In this guide, we’ll compare whole life insurance and term life insurance and help you decide which is best for your needs.
what is the difference between term and whole life insurance?
When it comes to life insurance, there are two main types: term and whole life. each has its advantages and disadvantages, so it is essential to understand the difference before deciding.
- Term life insurance provides coverage for a specified period of time, usually 10 to 20 years. premiums are lower than whole life insurance, making it an affordable option for many people. however, if you exceed the term, the policy expires and you are not eligible for death benefits.
- On the other hand, whole life insurance covers you for your entire life. As a result, premiums are higher, but the policy builds cash value over time that you can borrow or collect against if you need to. Whole life policies also generally have higher death benefits than term policies.
- The life insurance term is the number of years you will pay the bills. choose a term that will help protect your family if you pass away, for example, buying a 30-year term to reflect your bills in a mortgage payment.
- If you weren’t around, your family would need a certain amount of money to live and maintain their current lifestyle. so buy an amount that reflects your monthly expenses.
- The annual premium for whole life insurance remains the same.
- death benefit is guaranteed while premiums are paid.
- the cash value account grows at a fixed interest rate like a fixed annuity or a certificate of deposit (cd).
- if you only need life insurance to replace your income for a limited time, such as the years you are paying your mortgage or raising children.
- You want the cheapest coverage.
- You can’t afford whole life insurance now, but you’ll want it later. most term life policies are convertible to permanent coverage.
- wants to reduce inheritance taxes on his heirs.
- If you have a child with disabilities, life insurance can help fund a trust to care for that child.
- want to set aside money for final expenses, like funeral expenses.
- Renewable term insurance becomes more expensive over time. Although the entry-level term premium is low, it increases with each renewal due to the increasing age of the insured and mortality risk to the insurer.
- The insured may become uninsured at a time (when older) when protection is most needed because term insurance offers coverage for a set period.
- term insurance does not offer life benefits, such as guaranteed cash values.
- Even if the policy is renewable, it rarely lasts past a certain age, like age 65 or 70.
- The primary benefit of whole life insurance is that it is permanent coverage and can be used to meet long-term requirements, such as death, death, and final burial expenses.
- The level premium allows the policy owner to know precisely how much the insurance will cost and offers a form of forced savings.
- Whole life insurance allows the policyholder to use some of their money for emergency expenses, such as a source of supplemental retirement income and other long-term care insurance.
- the premium payment period may be longer than the insured’s years of earnings.
- On the other hand, term insurance offers more protection per dollar of premium than whole life insurance.
- best term life insurance rates
- the best term life insurance companies
So, which type of life insurance is right for you? it depends on your individual needs and circumstances.
For example, suppose you want coverage for a specific period of time, such as when your children are young, term life insurance may be the best option. but if you want lifetime coverage with the added benefit of cash value accumulation, lifetime coverage may be a better option.
Ultimately, it’s essential to work with a life insurance agent to help you determine which type of policy is best for your particular situation.
Whole Life and Term Life Insurance: The Basics
what is term life insurance?
Term life insurance is called pure life insurance because it only protects your dependents. If you have a term policy and you die while the insurance is active, the beneficiaries will get the death benefit tax-free.
You choose how long the life insurance policy lasts when you buy it. a common term is ten years, but you can make it 20 or 30 years. the cost of the policy remains the same during the term of your plan, as does the payment.
tips when buying term life insurance
Ideally, your need for life insurance will end by the time the term life policy expires: your kids will be on your own, you’ll have paid off your house, and you’ll have plenty of savings to serve as a financial safety net.
what is whole life insurance?
Life insurance that provides coverage for life is called whole life insurance. premiums will earn tax-deferred interest while the policy is active.
You can borrow money against the account through a loan. There will be interest to pay on the loan and if it is not repaid, the death benefit for the beneficiaries will be reduced. You can also waive the policy for a cash payment as well. there may be fees and ransom charges involved. You will no longer be covered if you waive the full amount of the policy.
whole life insurance highlights
Some whole life insurance policies earn dividends. you can take them in cash, leave them in your account to earn interest, or use them to reduce your premium payments or pay off policy loans. dividends are not guaranteed.
Which is cheaper, whole life insurance or term life insurance?
Term life insurance is cheaper because it only lasts for a limited time. your beneficiaries will not receive any money if you live past the end of your term. whole life insurance is more expensive because it lasts a lifetime and has a cash value that generates a guaranteed return on the cash value.
Below are monthly price comparisons between term life insurance and whole life insurance. the most common term length is 20 years; we will use a $1 million life insurance policy for the amount of coverage.
term life insurance vs. whole life insurance: factors to consider
you buy term life insurance if:
buy whole life insurance if:
advantages of temporary insurance
Term life insurance often provides a lot of coverage for a low cost. can help people with limited incomes buy more coverage than they could afford with permanent life insurance.
disadvantages of temporary insurance
disadvantages of whole life insurance
calculator for whole and term life insurance
Compare whole life insurance to term life insurance with our calculator below.
term and permanent life insurance that does not require medical exams
It’s important to understand that there are pros and cons to both term and permanent life insurance policies. which one is right for you depends on your specific needs and goals. If you’re not sure which policy is best for you, we can help. Request a quote today to see how much coverage you could get with a term or whole life insurance policy.
need help getting life insurance coverage?
Contact us if you need help buying a life insurance policy. the service is free.