The differences between term and whole-life insurance can be reduced to cost and length. It covers you for a certain period and pays you out if you are unable to continue the term. Whole life insurance usually lasts your entire lifetime and includes a savings component, known as the “cash worth,” which makes it more expensive and complex.
The death benefit is a payout that your loved ones can use to cover costs such as funeral expenses and mortgage payments. One type or the other of your life insurance may work better depending on what you need.
Overview: Whole life insurance vs term life insurance
This quick guide will help you to understand the difference between term and whole life coverage.
What is term-life?
Term life insurance works by providing coverage for a specific period of time (e.g. 10, 20 or 30 year) and paying out if you are unable to continue the term. If you live beyond the term, your beneficiaries will not receive any money. The death benefit and your policy premium are guaranteed to remain the same for the entire term of most policies.
In order to be able to cover your financial obligations, the duration of your term life insurance must match that obligation. You might purchase a 20-year policy if you’re a newly married parent to ensure that you have enough coverage until your child can no longer rely on you financially. All the best term life insurance companies are available online to help you find and compare life Insurance quotes.
What is globe life insurance?
Permanent life insurance which is the most commonly purchased permanent lifestyle insurance, costs more than term. The reason is that most policies provide coverage that will last a lifetime and pay no matter what time you die. The cash-value component of whole life insurance is also available. Your premiums are paid into this account and it grows over time. Once the cash value has been built up, you can either borrow against the account or cash out the policy.
It’s more complicated than term insurance, but globe life insurance works is simpler than other permanent life insurance. Your premiums are the same throughout your life and your cash value account grows at a fixed pace. Unless you take out large cash-value loans, your death benefit will be guaranteed. You don’t have to repay loans if your policy allows you to borrow, but your insurer will subtract any outstanding loan payments from the final death benefit that is paid to your beneficiaries.
Many globe life insurance policies can be considered “participating”, which means that you could earn dividends based the company’s financial performance. Your dividends can be used for a variety of purposes, including increasing your policy’s cash value.
Cost of whole-life vs. term:
Term coverage is often the most affordable form of life insurance as it’s short-term and has no cash value. Premiums for whole life insurance are more expensive because coverage lasts a lifetime and the policy has a higher cash value. Here are the annual premiums of a $500,000 policy for term life insurance vs. whole-life insurance.
How to decide between term and whole life insurance
While term life is sufficient for most families and can be used in certain situations, whole life or other permanent coverage may be beneficial.
If you want to:
- You only need life insurance that covers you for a certain period. A term policy on life can replace your income in the event that you become incapacitated or have financial obligations like paying off your mortgage or raising children.
- Looking for the best possible coverage? Term life insurance, especially for those who are young and in good health, is the most affordable option.
- You might think you might need permanent life insurance, but are unable to afford it right now. You can convert many term life policies into permanent coverage. Each policy will have a different deadline.
- Life insurance is not an investment vehicle. A term life policy is a better option than buying a whole-life policy. You can save as much as you would for a whole-life policy and invest the savings elsewhere.
You can choose your whole life if:
- Can you afford higher premiums? Whole-life insurance is a long-term commitment. Make sure you are able to afford it. Your policy could be cancelled if your premium payments are not made on time.
- Do you want to leave money for your family? A death benefit from whole-life policies could be used to create an inheritance. If you name beneficiaries in your policy, the payout will directly go to them, not through your estate.
- A trust can be established to care for your child after your death. Before you set up a trust, speak with a lawyer and financial advisor.
- Life insurance with guaranteed cash value. The insurer guarantees that the whole-life policy’s cash value will grow at a certain rate.
You may also be interested in life insurance
You may also consider permanent life insurance, which provides more investing options than whole-life insurance.
- Universal insurance earns interest according to current market rates
- Both variable universal insurance and variable life insurance give you direct access to the stock market.
- Indexed universal Life Insurance Earns Interest based on Stock Indexes like S&P 500.
The premiums you pay to whole life and term policies are generally set right from the start. However, there are often other options that have different costs. These can vary depending on the performance and type of coverage purchased. You may be able to save a lot or incur unexpected costs.