What is the Difference Between Term and Whole Life Insurance?
The two most common types of life insurance are term and whole life. But, how do you choose which type is best for you?
While each of these life insurance policy types can be customized to help fit your specific needs, it is important to understand the basic differences between them. Let's look at each in more depth to learn more about term vs. whole life insurance.
What is Term Life Insurance?
Term life insurance is life insurance that provides protection for a specific period of time. It insures against the unthinkable - a premature death. This type of policy only pays your beneficiaries if your death occurs within the period of time you're covered. Otherwise, it expires with no value.
Benefits of Term Life Insurance
- Affordable monthly rates
- Guaranteed amount paid to beneficiaries
- Choose a length and amount of coverage
- Rates don't change over time
Typically, these periods of time, or "terms", are offered in increments of 10, 20 or 30 years. Many experts will recommend that you choose a length of time that meets the financial needs of your family. You'll want to consider several factors like the number of years left on your home mortgage and how many years before your children become independent.
With term insurance, once you finalize your policy, your premiums are locked in until it expires. For this reason, term life insurance is often appealing to people who are seeking to cover themselves during specific phases of life, or to meet a specific need. For example: some people want to provide financial protection to their loved ones during their prime earning years. Term life insurance policies can be beneficial for those with growing families or ongoing debts. You can choose a term length based on your needs, and ideally have the policy end when your financial responsibilities lighten.
Because it doesn't carry any value after its expiration, term life insurance can usually be offered at an affordable rate, making it an attractive life insurance option for families on a budget. With term insurance, once you finalize your policy, your premiums are locked in until it expires.
Some term life policies, known as "convertible" policies, can be converted it to a permanent life insurance policy in the future. This can be appealing for those who know they need to purchase insurance, but are uncertain about long-term financial plans. It is important to note that convertible life insurance policies can only be converted during a window of time specified in your contract with your insurer.*
* See your policy for details
Converting a Term Life Insurance Policy to Permanent
We offer a selection of personalized life insurance quotes all from quality life insurance companies. We offer free life insurance quotes for policies that are competitively priced and easy to apply for. Our salaried representatives are licensed term life insurance specialists who provide the straight answers and personal service you need to make informed decisions. Request a free term life insurance quote now.
A convertible term life policy can allow you to benefit from attractive rates, plus the ability to upgrade the policy to permanent coverage without another medical exam.
What is Whole Life Insurance?
Benefits of Whole Life Insurance
- Can provide lifelong coverage
- Offers tax deferred cash value
- Guaranteed amount paid to beneficiaries
- Rates, though higher, don't change over time
Like its name indicates, whole life insurance can provide lifelong coverage. This type of policy, similar to term insurance, will pay your beneficiaries if something should happen to you, but it may also include a cash value component that can be utilized by the owner throughout the policy's lifetime. That component is known as cash value accumulation.
The cash value of your policy is tax deferred and grows at a guaranteed rate so long as your premiums are paid as they're due.**
If your policy has cash value, you may have the option to borrow money against your policy or surrender it all together, which means that you may be able to cash in your policy for what it is currently worth. This can be help helpful to policyholders who incur financial hardship or unexpected bills such as medical expenses. It should be noted, though, that if you borrow against your policy, it must be repaid in order for your death benefit to remain unaffected. And if you choose to surrender, you will no longer have coverage.
Because it offers lifelong coverage, as well as the potential for cash value benefits, whole life insurance is understandably a more expensive option in most instances. A whole life policy may be a good fit if you have expendable income you'd like to invest by utilizing cash value accumulation, but still want to help ensure your family is protected.
How to Choose Between Term vs Whole Life Insurance?
While it's always a good idea to consult a licensed agent as you make your choice, there are some helpful hints if you're having a hard time deciding between term and whole life insurance, or choosing a life insurance policy.
Consider choosing term life insurance if:
- You only need life insurance for a specific period of time.
- You need a way to help protect your family that meets your budget.
- You want to cover debts that will be paid off in the coming decades.
Consider choosing whole life insurance if:
- You're interested in using life insurance as a part of your financial planning strategy.
- You have expendable income.
- You want a policy that lasts your lifetime.
Now that you've learned the basics: get started by requesting a quote on our website or call 800-294-4544 to speak with a licensed agent to discuss what's best for your family and begin the application process.
Term Life
Whole Life
**Based on current federal income tax law. Assumes the use of withdrawals to basis and/or policy loans. If the policy is classified as a modified endowment contract (see IRC section 7702A), withdrawals or loans are subject to regular income tax and an additional 10% tax penalty may apply if taken prior to age 59 ½.
