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According to PolicyGenius, 52% of Americans have life insurance. Learning the difference between term and whole life insurance is a great place to start!
When it comes to life insurance, there are two main types: term and whole life. But what’s the difference? And which one is right for you?
This blog post will summarize everything you need to know about term and whole life insurance, including cost comparisons and pros and cons.
By the end, you can decide which type of life insurance is best for you!
Table of Contents
What is Term Life Insurance?
Term life insurance is the most basic and straightforward type of life insurance.
It is also the most affordable. You are insured for a period, typically 20 or 30 years, with term life insurance.
If you die during that time, your beneficiaries will receive a death benefit.
If you live past the term of your policy, your coverage will end, and you will not receive a death benefit.
For this reason, term life insurance is often called “temporary” or “non-permanent” insurance.
What is Whole Life Insurance?
Whole life insurance is a type of permanent life insurance that covers you for your entire life.
Unlike term life insurance, whole life does not have a set term. As long as you pay your premiums, your coverage will continue.
Whole life insurance also has a cash value component. This means that a portion of your premiums goes into a savings account that grows over time.
You can borrow against this cash value or even surrender the policy for its cash value if you no longer need life insurance.
Whole Life and Term Life Insurance Differences
The main difference between whole life and term life insurance is that whole life insurance provides lifelong coverage. In contrast, term life insurance only covers you for a specific period.
Whole life also has an investment component, which allows you to grow your money over time.
Term life insurance is generally less expensive than whole life insurance but does not offer the same financial security.
Another difference is that whole life insurance has a cash value you can borrow against, while term life insurance does not.
Finally, whole life insurance typically requires a medical exam, while term life insurance does not.
Cost Comparison: Term vs. Whole Life Insurance
Whole life insurance is generally more expensive than term life insurance. This is because it provides lifelong coverage and has an investment component.
The cost of whole-life insurance also depends on your age, health, and the death benefit you choose.
Term life insurance, on the other hand, is less expensive because it only covers you for a specific period.
The cost of term life insurance depends on your age, health, and the length of the term.
When evaluating the cost of life insurance, it’s important to consider your needs and budget. For example, if you are young and healthy, you may be able to get by with a cheaper term life policy.
However, if you have a family or dependents, whole life insurance may be a better choice because it will provide financial security for your loved ones in the event of your death.
If you are young, healthy, and looking for a basic life insurance policy, term life insurance is typically the more affordable option.
You can find options for as little as $20-$50 per month.
If you are older, have health issues, or are looking for a more comprehensive life insurance policy, whole life insurance may be a better option.
In this demographic, you can expect to pay $100-$200 per month for a whole life insurance policy.
These two examples are on the opposite side of the spectrum. The cost can also vary depending on the company you choose, the coverage you need, and various other factors.
Both term and whole life insurance offer payment options, so you can choose what fits your budget.
However, it’s important to remember that whole life insurance policies are more expensive because they provide lifelong coverage. This can add up if you need coverage for 20, 30, or even 40 years.
On the other hand, term life insurance policies are less expensive because they only cover you for a specific time.
If you need coverage for only a few years, such as when your children are young, term life insurance may be a more affordable option.
Choosing this option can save you a lot of money in the long run.
Some industry secrets on why a life insurance policy costs and what it does:
When you apply for a life insurance policy, the company will look at various factors to determine your rates.
As mentioned earlier, the most important factors include your age, health, lifestyle, and the death benefit you choose.
However, the company will also look at your medical history and any pre-existing conditions you have. You can expect to pay higher premiums if you have a history of health problems.
Finally, the company will also consider your family history. If you have a family history of health problems, you may be considered a higher risk and pay higher premiums.
Related Content: The Best Affordable Health Insurance Options for Early Retirement
Pros and Cons: Term vs. Whole Life Insurance
There are pros and cons to both term and whole life insurance. It’s important to weigh these carefully before deciding which policy is right for you.
Pros of term life insurance include:
- It is more affordable than whole life insurance.
- It is easier to qualify for.
- You can choose the length of the term, which gives you flexibility.
Cons of term life insurance include:
- It only covers you for a specific period.
- Your beneficiaries will not receive a death benefit if you live past the term of your policy.
Pros of whole life insurance include:
- It covers you for your entire life.
- Your beneficiaries will always receive a death benefit, no matter when you die.
- It has a cash value component that allows you to grow your money over time.
Cons of whole life insurance include:
- It is more expensive than term life insurance.
- You will need to undergo a medical exam to qualify.
How to choose between term and whole life insurance
The best policy for you will depend on your individual needs and circumstances.
Be sure to compare different types of policies before making a decision. This will help you find the coverage that best meets your needs at the most affordable price.
Term life insurance has its pros and mainly its affordability, while whole life offers lifelong protection and has an investment element that builds cash value over time that can be borrowed against it if needed.
If you don’t have any other assets you can borrow against, a whole-life policy can take that position and provide you with a financial safety net.
It depends on your needs as to which policy is better for you.
However, if you are unsure of your future income potential, term insurance may be better. This is because it is more flexible regarding how long you are covered and how much you pay each month.
Both term and whole life insurance have pros and cons, so it’s important to weigh these carefully before deciding which type of policy is right for you.
Consider your needs and budget when making your decision. If you are on a budget, term life insurance is generally more affordable.
If you are looking for lifelong coverage and the peace of mind that comes with it, whole life insurance may be worth the extra cost.
No matter what policy you choose, be sure to compare different policies before making a decision.
This will help you find the coverage that best meets your needs at the most affordable price.
Some factors to consider when choosing between term and whole life insurance include:
- Your age
- Your health
- Your budget
- The death benefit you need
- How long do you need coverage for
- Whether or not you want an investment component in your policy.
If you answer ‘yes’ to any of the following questions, a whole life insurance policy might be a better option for you:
- Do I want coverage for my entire life?
- Do I want to build cash value that I can borrow against if needed?
- Am I looking for an investment opportunity?
If you answer ‘yes’ to any of the following questions, a term life insurance policy might be a better option for you:
- Am I on a tight budget?
- Do I only need coverage for a specific period?
- Is my main goal to provide my beneficiaries with a death benefit?
No matter what policy you choose, be sure to compare different policies before making a decision.
Doing so will help you find the coverage that best meets your needs at the most affordable price.
Questions to ask yourself to help you decide on a specific policy:
- How much can I afford to pay in premiums?
- What are my long-term financial goals?
- What is the most important thing I want my life insurance to do for my beneficiaries?
Answering these questions will help you narrow your options and choose the best policy.
As a reminder, always shop around and compare policies before making a decision. This will help you find the coverage that best meets your needs at the most affordable price.
You can also try negotiating with life insurance companies to get a lower rate.
Remember, the best life insurance policy is the one that meets your unique needs and circumstances. There is no “one size fits all” in life insurance, so be sure to research before making a decision.
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
