Term Life Insurance vs. Whole Life Insurance: What You Need to Know
Dan Levenson February 15, 2018
Life insurance is something that most people don’t want to think about needing, but the truth is that everyone could benefit from having this type of coverage at some point in their lives. Doing your homework and purchasing a life insurance policy can bring you and your family peace of mind for years to come—and you might even be surprised at how affordable it can be.
Still, as you begin navigating your options, you’ll likely be faced with one important question right away: Do you want term or whole life insurance?
There are substantial differences between the two, so knowing what each option entails and figuring out what’s best for your unique circumstances is important.
Understanding Term Life Insurance
As the name implies, term life insurance refers to coverage that lasts for a pre-determined amount of time. Usually, term life insurance policies are sold in terms of anywhere from five to 30 years, but this can vary from one insurance carrier to the next. Each time a “term” approaches expiration, you will have the option to renew or convert to a whole life insurance policy (more on those in a minute).
Generally, term life insurance policies tend to be the least expensive and the easiest to purchase. Because they’re only in place for a finite amount of time, this can really help to curb costs.
Of course, because the policy must be renewed after each term, prices can steadily increase with each renewal, since the age of the policy holder (and therefore the risk) will increase with each renewal as well. This is especially true for those who opt for shorter-term policies, such as five-year options.
Furthermore, it’s important for policy holders to realize that term life insurance policies only pay out death benefits—not any cash value accumulation.
Understanding Whole Life Insurance
Whole life insurance is another option worth considering. Unlike term life insurance, a whole life insurance policy is meant to cover you for life, rather than just a few years at a time.
Also unlike term policies, it is more common practice with whole life policies for insurance companies to require a medical exam before a person can be covered. From there, the cost of the policy can vary based on the policy holder’s age, health, and other unique risk factors.
In some cases, insurance companies may offer the option of allowing policy holders to forego a medical exam, but this may come in exchange for higher premiums.
In addition to offering death benefits, one of the main advantages of a whole life insurance policy (other than…well, being covered for life) is the fact that these policies can accumulate cash value over time. This allows policy holders to withdraw or even borrow a portion of the accumulated value if they so desire.
Which Option is Best For You?
Deciding on term versus whole life insurance can be challenging. Generally, for those who are most concerned about affordability, a term life insurance policy will be the best offering. Otherwise, many people will likely prefer a whole life insurance policy, but it never hurts to weigh both equally.
Term and whole life insurance can both be great options under different circumstances. By understanding the differences between the two, you can make better informed decisions for you and your family for the future.