Today, more than 100 million people don’t have the life insurance they need. One of the reasons often cited by those who are un- or underinsured is that they don’t understand the basics of life insurance. Especially the difference between whole life insurance and term life insurance policies.
In this new blog, we take the opportunity to explain the differences between these two types of life insurance and help you understand the features of each one.
Term life insurance covers you for a specific period of time, like one year or five years, and then expires. If you don’t happen to need it during that time, coverage ends. But you can choose to renew it for another term. And another term after that. And so on.
Whole life insurance is a common type of permanent insurance. So, once you buy it, you have it for life. (Unless you cancel the policy or stop paying the premiums.) And unlike term life insurance, whole life insurance can build up cash with every premium payment you make. Over time, you can access or borrow against the cash in the policy to pay for other needs and goals — while you’re alive.
While these are the key differences between whole life insurance and term life insurance, we outline a few more distinctions between the two types of policies:
Differences between Whole Life Insurance versus Term Life Insurance
|Term Life||Whole Life|
|Coverage is temporary;
lasts for a specific period of time
|Coverage is permanent;
lasts for life
|Expires at the end of the term||Does not expire|
|Only pays if you die during the term;
does not build up cash
|Builds cash with premium payments which you can access tax-free|
|May be renewed at the end of the term; usually at a higher rate
May be converted to permanent life insurance
Typically, the most affordable type of life insurance
|Premiums generally don’t increase.
More expensive than term life
Of course, the big question is . . . which type is right for you? Well, that depends on your particular situation. Here are a few factors you may want to consider to help you decide.
You may want to consider Term Life Insurance if you’re looking to:
- Replace your income
- Pay a lower cost than permanent insurance
- Provide a sum of money to your family that could pay short-term financial bills, like loans, childcare, or college tuition, if you were suddenly no longer around to take care of them.
Whole Life Insurance may be the better choice for you if you’re looking to:
- Secure financial protection that lasts your entire lifetime
- Gain a death benefit that never expires
- Build cash in the policy
Want to explore the difference between term life and whole life insurance in more detail? Our Guided Solutions team can help you find the right policy for your needs. Connect with us today to review your options and get a free quote.