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What Is The Difference Between Term Life And Whole Life Insurance?

What Is The Difference Between Term Life And Whole Life Insurance?

 

Should I buy Term Life Insurance or Whole Life Insurance? What’s The Difference Between Term Life And Whole Life Insurance ? When it comes to life insurance, these are the most frequently asked questions. Neither is really ‘better’, per se, but each type of policy serves its own purpose and has its own advantages and disadvantages. To see you options please feel free to click on the “View Your Quotes” button above. Please use our free calculators to determine how life insurance you may need to protect your family.

Let’s start with term life. Term life (sometimes referred to as temporary life insurance) is probably the most commonly purchased type of life insurance, mostly because it is also the least expensive. A term life insurance policy is only meant to cover a person for a specific period of time (the term). Term policies are typically issued in 10-, 20- and 30- year increments, with the shorter term policies being less expensive than the longer. On most policies, the premium is locked in for the length of the term.

Term Life Insurance Example

A 10- year term policy, for example, will have a fixed premium and pay a fixed death benefit to your beneficiary if you pass away within 10 years after purchasing the policy. If you are still alive after 10 years, then the policy lapses, you are no longer insured, and you get nothing back (term policies typically do not have cash value accumulation). If you still need life insurance, you start from scratch. Considering will be 10 years older, the premiums on your new policy will likely be much higher. You also face the risk that your health could change, and you may no longer be insurable in 10 years.

What Happens to the Policy When the Term Ends?

Most companies will give you the opportunity to keep the policy after the term ends; however, the premium is no longer fixed and will increase dramatically each year that you keep the policy in force. Most insurance companies will also give the policy owner the opportunity to convert all or a portion of their term life policy to whole life (or another form of permanent life insurance) at a higher premium. There is often an age restriction on converting.

What Is Mortgage Protection Insurance?

Term life policies are often purchased with a specific purpose in mind. People often purchase term life when they buy a home so that their spouse can pay off the mortgage in the event of their death. Once the mortgage is paid off, there is no longer a need for the insurance, so therefore the temporary nature of this type of policy is practical. This is often referred to as ‘mortgage protection’ insurance.

How Does Term Life Insurance Help My Family?

People also tend to purchase term life when they have children since their children will usually be financially dependent on them for the first 20 years or so of their lives. A 20-year term policy may be ideal or a new parent without a great deal of expendable income (to purchase whole life) but who would like a policy in place to make sure their kids are taken care of monetarily should a parent pass away before the child is an adult. Again, this is a temporary need, since once the child or children are grown, they are no longer financially dependent, and the insurance need is no longer there.

Whole Life Insurance Is For Your Whole Life

If Term Life is like renting an apartment, then Whole Life is compared to buying a home and enjoying the benefits of ownership. Whole life insurance, on the other hand, is a permanent form of life insurance. There is no term length, and it is designed to insure a person for their entire life. While this does sound ideal compared to the temporary nature of term life, the biggest disadvantage is cost. Whole life is considerably more expensive than term life.

How Does Whole Life Insurance Coverage Work?

Most companies will offer multiple payment options on whole life insurance. For example, they may offer a 10-pay or a 20-pay whole life policy. That means that you only pay premiums for 10 or 20 years. After the pay period, no more premiums are due on the policy, and the policy stays in force until your death. If you pass away before the pay period ends, the full death benefit is still paid, and no more payments are due.

Some carriers also offer single premium whole life insurance, where you pay a single lump sum upon purchasing the policy, and you have a policy in force for your entire life with no further premiums due.

Whole Life Insurance can be part of a Financial Plan

Another advantage of whole life is cash value, which accumulates within the policy over time, and can be borrowed against by the policy owner as a source of funds. Within the policy, these cash values grow tax-deferred. Policy loans will decrease the cash value and death benefit of the policy. Whole life cash value tends to accumulate slowly within the first few policy years, and then start to accelerate as time goes by. Upon purchasing whole life insurance, your agent is required to provide you with an illustration which shows how the cash value and death benefit of a policy will change over time.

Term or Whole Life Insurance-Which Is Better?

As you can see, both term and whole life have their advantages. Which one is better depends on the situation of the individual purchasing it? Term life is by far the less expensive option, but is not permanent, and does not have as many benefits. While whole life will cost you more, the permanent death benefit and cash value accumulation might be worth the extra premium for some people. In any case, talking to a professional and weighing the differences before making a decision is a good idea.

Term Life

Inexpensive compared to whole life
Premiums are fixed for a period of time
Ideal for someone with a temporary life insurance need (such as dependent children, mortgage)

Whole Life

You cannot outlive the death benefit
Accumulates cash value, which can be used by the policy owner
Much more expensive compared to term insurance
Premiums will never increase
To find out about other lower priced options available to you, please click on our “View Your Quotes” button in addition you can speak with a licensed agent by calling  866-936-3831. Gary W Blackmon is helping customers from California to New York find cheap life insurance.

When it comes to life insurance, this is the probably one of the most frequently asked questions. Neither is really ‘better’, per se, but each type of policy serves its own purpose and has its own advantages and disadvantages.

Let’s start with term life. Term life (sometimes referred to as temporary life insurance) is probably the most commonly purchased type of life insurance, mostly because it is also the least expensive. A term life insurance policy is only meant to cover a person for a specific period of time (the term). Term policies are typically issued in 10-, 20- and 30- year increments, with the shorter term policies being less expensive than the longer. On most policies, the premium is locked in for the length of the term.

Term Life Insurance Example

A 10- year term policy, for example, will have a fixed premium and pay a fixed death benefit to your beneficiary if you pass away within 10 years after purchasing the policy. If you are still alive after 10 years, then the policy lapses, you are no longer insured, and you get nothing back (term policies typically do not have cash value accumulation). If you still need life insurance, you start from scratch. Considering will be 10 years older, the premiums on your new policy will likely be much higher. You also face the risk that your health could change, and you may no longer be insurable in 10 years.

What Happens to the Policy When the Term Ends?

Most companies will give you the opportunity to keep the policy after the term ends; however, the premium is no longer fixed and will increase dramatically each year that you keep the policy in force. Most insurance companies will also give the policy owner the opportunity to convert all or a portion of their term life policy to whole life (or another form of permanent life insurance) at a higher premium. There is often an age restriction on converting.

What Is Mortgage Protection Insurance?

Term life policies are often purchased with a specific purpose in mind. People often purchase term life when they buy a home so that their spouse can pay off the mortgage in the event of their death. Once the mortgage is paid off, there is no longer a need for the insurance, so therefore the temporary nature of this type of policy is practical. This is often referred to as ‘mortgage protection’ insurance.

How Does Term Life Insurance Help My Family?

People also tend to purchase term life when they have children since their children will usually be financially dependent on them for the first 20 years or so of their lives. A 20-year term policy may be ideal for a new parent without a great deal of expendable income (to purchase whole life) but who would like a policy in place to make sure their kids are taken care of monetarily should a parent pass away before the child is an adult. Again, this is a temporary need, since once the child or children are grown, they are no longer financially dependent, and the insurance need is no longer there.

Whole Life Insurance

Whole life insurance, on the other hand, is a permanent form of life insurance. There is no term length, and it is designed to insure a person for their entire life. While this does sound ideal compared to the temporary nature of term life, the biggest disadvantage is cost. Whole life is considerably more expensive than term life.

How Does Whole Life Insurance Coverage Work?

Most companies will offer multiple payment options on whole life insurance. For example, they may offer a 10-pay or a 20-pay whole life policy. That means that you only pay premiums for 10 or 20 years. After the pay period, no more premiums are due on the policy, and the policy stays active until your death. If you pass away before the pay period ends, the full death benefit is still paid, and no more payments are due.

Some carriers also offer single premium whole life insurance, where you pay a single lump sum upon purchasing the policy, and you have a policy in force for your entire life with no further premiums due.

Whole Life Insurance Can Be part of a Financial Plan

Whole life is cash value, which accumulates within the policy over time, can be borrowed against by the policy owner. Within the policy, these cash values grow tax-deferred. Policy loans will decrease the cash value and death benefit of the policy. Cash value tends to accumulate slowly within the first few policy years, and then accelerates as time goes by. Upon purchasing whole life insurance, your agent is required to provide you with an illustration. How the cash value and death benefit of a policy will change over time is shown in the illustration.

Term or Whole Life Insurance-Which Is Better?

So now how would you answer: What Is The Difference Between Term Life and Whole Life Insurance? As you can see, both term and whole life have their advantages. Which one is better depends on the situation of the individual purchasing it? Term life is by far the less expensive option, but is not permanent, and does not have as many benefits. Whole life costs more, however the death benefit and cash value accumulation is worth the extra premium for some people. In any case, it’s a good idea to talk to a professional and weigh the differences before making your decision.

Term Life

Inexpensive compared to whole life
Premiums are fixed for a period of time
Ideal for someone with a temporary life insurance need (such as dependent children, mortgage)

Whole Life

You cannot outlive the death benefit
Accumulates cash value, which can be used by the policy owner
Much more expensive compared to term insurance
Premiums will never increase

Find out about other lower priced options available to you. Please click on our “View Your Quotes” button, or you can speak with a licensed agent by calling  866-936-3831. Gary W Blackmon is helping customers from California to New York find cheap life insurance.

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