Life insurance, like all other types of insurance, provides protection and security when things go wrong. In the case of life insurance, it would be the death of the policyholder. By securing a policy, the insured has helped alleviate any potential financial burdens (at least for a period of time) by providing financial support in the form of life insurance payouts.
however, it is subjective and may depend on various personal factors. The type of life insurance policy chosen is also specific to personal circumstances and preferences. There is no one recommended type for everyone. Therefore, it is very helpful to understand the difference between the two : whole and term.
If you are currently in the market for life insurance or simply want to increase the coverage you already have, now is a good time to do so. You can get started by getting a quote today.
Before you decide what type of insurance policy you want, make sure you understand how both basic types work.
Whole versus term life insurance
There is no one-size-fits-all answer when it comes to life insurance. You may even already have a type of life insurance chosen for you by a spouse, family member or employer. But understanding the differences between a whole and a term can help you make the right decision.
Whole life insurance
Whole life insurance is usually more expensive because you have more options. Also known as permanent life insurance, this type remains active for the lifetime of the insured. There is no policy expiration date. Therefore, the premiums are relatively high.
But there is another factor to consider with whole life insurance: the money and investment aspect. Some whole life insurance policies pay a dividend. You can also build up the dollar value of the policy and cash it out to use for other expenses, debt and more. This type of life insurance should also be seen as an investment – as the extra money the insurance company has received from the premiums is invested for you.
In short, whole life insurance is more expensive, but the benefits may be worth it. If you are interested in researching your life insurance policies, there are numerous companies waiting to help you. Get an estimate and choose the policy type that’s best for you and your family.
Term life insurance
This type of coverage is self-explanatory. It is limited to a selected term or time frame of your life. It will not last for the lifetime of the policy holder and will have to be renewed. Terms can be 15, 20, 30 years or any other agreed time frame. If the policyholder dies during one of these periods, the policy pays out to the beneficiaries. If they do not and the policy is not increased for a subsequent term, then no payout will be made.
Because of time constraints and the fact that payments are not invested or accumulate cash value, term life insurance premiums are usually less expensive than whole life insurance. But every time you renew, expect premiums to go up. This is doubly true if you become ill or experience a high-risk medical condition during one of your terms.
Differences between whole and term life insurance
Ultimately, both types of life insurance offer your loved ones some financial protection if you die. When you buy life insurance, you can name one or more beneficiaries and determine how you want to distribute the proceeds. Even though whole life insurance seems to offer the better path, that doesn’t necessarily mean it’s the better option for the policyholder.
To summarize, here are some key differences between the two policies:
- Length: Whole life insurance is not dictated by predetermined time frames. A term life insurance policy, on the other hand, includes coverage between a specified period of time (usually between 10 and 30 years) chosen by the policyholder.
- price: If you’re looking strictly on price, term life insurance may be the better way to go. Of course, it won’t last forever and by definition will only offer coverage for a selected term. But maybe that’s all it takes. This is especially true for younger people or those just starting a family who are looking for protection but don’t want to break the bank in the process.
- Cash value: With whole life insurance, it’s possible to receive a dividend or withdraw some of the cash value (note: it’s usually a good idea to let your money grow before taking this action). Term life insurance has no cash value.
Regardless of where you fall on this range and what your personal preferences and circumstances are, most financial experts agree that it’s smart to have life insurance. Whether it is a term or a whole is not so important as just that the protection is put in place.
Remember, policies can always be adjusted and preferences change (especially as the insured ages), but coverage and protection for you and your family remains vital.
Still not sure which type of life insurance is right for you? Get a quote and explore your options today.