Life insurance: whole vs. term

Do you need help navigating the world of life insurance?

Life insurance something you may already have however, if you’re looking into a policy and are unsure of which direction to go, we are here to help! Here’s a breakdown of whole vs. term life insurance policies to take the pain out of which direction to go.

Even if not now, you are going to think about your retirement future soon. Of course, life insurance will be the first option in your mind. But interestingly, we cannot control life. Things happen unknowingly, and we can only plan for tiny moments. So, it is essential to keep things in place right now without waiting for the time. It does not matter if you’re completing your college or near retirement; the best time to have life insurance is NOW!

When it comes to life insurance, people get stuck between two similar but different names, i.e., Term Life Insurance and Whole Life Insurance. This article aims to define both terms by creating a difference, Term Life Insurance v/s Whole life Insurance, to build a clear understanding.  

What Is Term Life Insurance?

The term life insurance is straightforward; thus, it is easy to understand. It provides coverage for a specific period. If you or your spouse dies during this period, the beneficiary will have the payment according to the policy. As the comparison is concerned, the term life insurance offers affordable plans to the customer. When you have term life insurance, the policy has no cash value till your life. It worths the money when one of you passes away during the due period. Although everyone hopes to live a longer life, death is an undeniable fact. At least the amount will not put the family in trouble. 

When you buy the policy, you choose the term between 10, 20, or 30 years. This is the tenure in which you will pay the bills. You can select the payment which you think your family will need when you die. The term life insurance gives the following benefits:

  • You can cancel the policy even if the period has not ended yet, without compromising on the money 
  • It does not cost you any extra hidden charges

What Is Whole Life Insurance?

The whole life insurance plans are comparatively expensive than term life insurance. It is permanent insurance that allows you to have a cash value account. It provides coverage for a lifetime and includes an investment plan. Due to the cash value account, its premiums are costly. There are various reasons behind this, but the benefits of whole life insurance cannot be denied.

  • Its premiums remain the same as long as you are alive 
  • It does not expire
  • It works as a saving vehicle 
  • The cash value continuously grows in the account 
  • It guarantees death benefits 

When you choose the whole life insurance, the cash value grows with time. Interestingly you will not have to pay the tax on gains, as the cash-value account is tax-deferred. The policy allows you to borrow money in exchange for the account’s cash. But you need to repay loans as per policy. If you do not payback, the company deducts the payment from the end benefits. However, they offer a surrendering option, but you will not get the coverage in that case. 

It is good to have a life insurance plan, but you must keep in mind that insurance is not a money-making scheme. So it is not recommended to opt for insurance as an investment policy. Life insurance’s purpose and idea are meant to provide security, protection, and ease to your family. Once Dave, author of The complete money guide, wrote in his book, “life insurance performs only one job to replace your income when your life ends.” 

Term Life Insurance v/s Whole Life Insurance 

Cost Comparison

It is cost-effective because it is a short-term policy and has no cash value. Whereas the whole insurance provides coverage for a lifetime; thus, it costs high premiums. Moreover, the whole life policy has a cash value. For a 500,000$ policy, the calculated annual price comparison for the whole life and term life insurance. 

Person & Age Whole Life Insurance Term Life Insurance
Male (30 years) $4,015 $228
Female (30 years) $3,558 $193
Male (40 years) $6,042 $341
Female (40 years) $5,413 $289
Male (50 years) $9,432 $842
Female (50 years) $8,440 $654

Which one to choose?

Term life insurance suits everyone’s needs, but both insurances have significant value in different conditions

You can choose the term life in the following case; 

  • If you only want to replace your income for a certain period. It can be a time in which you are raising your family or paying the mortgage 
  • If you do not earn enough to purchase a permanent life insurance plan. It allows you to convert your term life into a permanent life insurance plan 
  • If you want to buy a cheaper term life policy 

You can choose the whole life insurance in the following case; 

  • If you want to help your heirs in paying estate taxes 
  • If your child is disabled or unable to earn for himself. Whole Life Insurance offers a trust fund to provide care for your children 
  • If you want to balance the inheritances

The Bottom Line 

The whole life insurance provides more financial benefit than the term life. But, whole life is permanent insurance and more complex. On the other hand, the term life is less expensive than the whole life insurance. People mostly follow the old axioms; “Buy term, and invest the rest.” Nevertheless, in the whole life policy, the cash value addition proves better for the long run. Whereas the term insurance expires after the due period, and you will have to repurchase this policy. If you want to save for your family and capable enough to afford high premiums, then whole life insurance is the best option. Otherwise, you can have the term insurance for a more extended period and ease your heirs. 

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