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Term vs Whole Life Insurance: What’s the Difference?

Purchasing life insurance usually begins with one key decision: Should you purchase term life insurance or whole life insurance?

To answer the question of term life vs whole life, you need to know the main components of each, and how they apply to your individual circumstances.

Read on as we’re detailing each type of insurance so you can make an informed decision that is right for you.

What is Term Life Insurance?

The easiest way to think of term life insurance is to view it as temporary insurance. Term life is typically offered in terms of 10, 20 or 30 years. Once the term expires, you can renew your policy, although your premiums may rise significantly.

Term life insurance has often been referred to as “pure life insurance.” That’s because the policy has no other purpose than to provide protection for your beneficiaries in the event you die within the term.

If you should die prematurely during the term, your beneficiaries will receive a predetermined payout, called the death benefit.

With term life insurance, your premiums and the death benefit typically remain the same during the term of the policy.

Why Choose Term Life Insurance?

You always want to make sure you have enough insurance to protect your heirs when the time comes. If the cost is holding you back, consider term life insurance.

Term life policies are generally very affordable. If you’re just looking to get insured but you don’t want to spend a lot, term life insurance is the way to go.

Who Should Get a Term Life Policy?

The low premiums of a term life policy are attractive not only to those with limited means but to anyone keeping a tight budget.

Term life insurance is ideal for families. You can choose a term designed to end around the time your kids will be on their own.

At that point, your insurance needs will change. Your kids will be adults getting their own policies. And your financial safety net should be established with emergency money in savings.

What is Whole Life Insurance?

A whole life policy is a type of permanent insurance. It provides protection for your lifetime, so long as your premiums are paid on time.

Whole life insurance also features an investment component.

Why Choose Whole Life Insurance?

People usually choose whole life insurance because they are attracted to it’s three main benefits:

  • Lifetime Coverage: Whole life insurance provides the peace of mind, knowing you have coverage for the rest of your life. Your coverage is guaranteed for life, so your premiums remain the same, even as you grow older.
  • Cash Value: The cash value of your policy will grow at a guaranteed rate as long as you pay your monthly premiums. These earnings are tax-deferred making it possible to grow your cash value faster.
  • Loan Yourself Cash: Whole life policies feature the option to borrow money against your policy. You must pay yourself back in full, with interest, to avoid reducing the death benefit or even a lapse in coverage.

Who Should Get a Whole Life Policy?

A whole life insurance policy is ideal for someone who has a large estate to protect. Without a sufficient death benefit, your heirs may be required to sell off property and heirlooms in order to pay the estate and inheritance taxes.

Whole life also benefits those who wish to spend their retirement money while leaving an inheritance or money for funeral expenses.

The Bottom Line

So which should you get, term life insurance or whole life insurance? The answer depends on many factors specific to you, such as age, income, debts, and the age of your children.

While each option differs in coverage and premiums, both will provide protection for your loved ones when they need it most.

If you liked this article, please be sure to check out our blog.

If you need help in selecting an insurance policy for you and your family, contact us to get more information.

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