8 Real Differences Between Term and Whole Life Insurance

Choosing a life insurance policy can be very confusing. You have to understand what “term life” is, what “whole life” is, and how to get the necessary information needed to make the right choice about life insurance for you and your family.  This article will give you a general idea of these two popular types of life insurance so you’ll be able to pick the one that is right for you.

Making that bold decision on whether to purchase term life or whole life insurance is a personal decision that should be based on your financial goals as well as the financial needs of your beneficiaries.  Life insurance can be a very flexible and powerful financial medium that can meet several financial objectives, right from providing financial security to building financial assets and leaving a legacy.

Here are some of the main features of term and whole life insurance.  The features are what differentiate the two types of life insurance policies from each other. Follow the features closely and choose which policy fits your needs at this moment.

Features of term life insurance:

·         It provides death benefits only.

·         Benefits are paid only if you die while the term of the policy is on.

·         It is definitely the easiest and the most affordable insurance to buy.

·         It becomes more expensive as you grow old, especially when you are above 50.

·         It is purchased for a specific period of time, hence the word “term.”  The term may be 5, 10, 15, or 30 years.

·         If you want coverage to be extended beyond the term length, you must renew the term.

·         It can be used as a temporary additional coverage with a permanent life insurance policy.

·         In some cases, it can be converted to whole life insurance.

Features of whole life insurance:

·         It’s an insurance which covers you for life, no specific term of time.

·         It provides not just death benefits but builds a cash value over time.

·         Normally, before purchase, you must pass a medical examination.

·         Purchased without a medical exam, the cost is higher.

·         Building up a decent cash value takes about 12 to 15 years.

·         Its cash value is based on how much the return on investment is worth.

·         During the life of the policy, part of the cash value can be withdrawn or borrowed.

·         It has more expensive premiums than term life insurance.

Insurance companies like to sell Whole Life policies as an investment.  Their value, like an investment, may go up over time.  However, it depends on what your policy is invested in.  Remember, the cost of the premiums are usually quite high.  Although your premiums might end someday and the policy may earn enough to pay for itself, you have to weigh the pros and cons of your needs right now.  It may be better, especially the younger you are, to just pay a low premium for a term life policy and invest any extra money you have elsewhere, like in a Roth IRA.  If you self-direct your IRA, which we highly recommend, you could use that money to buy a piece of property that will create for your retirement a nice cash flow, outweighing any potential earnings of a Whole Life Policy.  If you have the money for the added costs of the premiums, however, you may want to own a Whole Life Policy with a reputable company.  It just depends on what you can afford and when.

Compare term life and whole life insurance costs for yourself.  You really only need life insurance while you are the sole provider for your family.  Once your kids are grown, you should already have a retirement account or two where you’re building your nest egg.  By that time, life insurance is pretty much obsolete unless you owe money.  Again, you need to look at your circumstances and decide. 

Note: be informed that there are many creative and flexible options with life insurance that can meet your unique needs. All you need is the help of a qualified life insurance professional to help you compare term life and whole life insurance and decide which would be the best plan for you.

Michelle R Russell

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