Term Life Insurance vs Whole Life Insurance
The differences between Term Life Insurance vs Whole Life Insurance are important to understand when considering a life insurance policy. Both policies provide a death benefit and in some cases it is good to have both a term life insurance policy and a whole life insurance policy to meet one’s financial planning needs.
Whole Life Insurance
1. Provides death benefit coverage for life.
As long as you pay your premiums, your whole life insurance policy remains in force. The whole life insurance policy provides coverage for your entire lifetime. This is different from term life insurance, which only provides a death benefit for a set period of time. 10 years, 20 years, and 30 years are common term lengths.
2. Builds cash value
In a whole life insurance policy, a portion of the premium that is paid accumulates into a cash value account. The cash value account accumulates on a tax deferred basis and accumulates at a competitive interest rate. A term life insurance policy does not accumulate any cash value and only provides a death benefit for the set term.
3. Can provide supplemental retirement income
The money that has accumulated in the cash value account from your whole life insurance policy can be borrowed out of the policy and can be used to supplement your retirement income. You do not have to wait until you retire to borrow money out of the policy. You can take the money out any time you wish.
1. Provides coverage for a set term length
Common term length options are 10 year, 20 year, and 30 year terms. The premium amount remains level throughout the term period. Once the term is over the life insurance coverage terminates and you must reenter the market if you want coverage again.
Keep in mind that the older you are when you apply for coverage, the more expensive premiums will be. Some term policies have a term conversion option which will allow all or part of the death benefit amount to be converted into a whole life policy without proving insurability. This allows the insured person to continue coverage without having to reapply for life insurance when the term policy expires.
2. Provides only a death benefit
There is no cash value build up in a term life insurance policy. A term policy provides a death benefit only. A whole life insurance policy builds cash value and provides a death benefit as well.
3. Cheapest option
The premiums on a term life insurance policy are less expensive than the premiums on a whole life insurance policy. Term life insurance is especially helpful for young families that do not yet have significant savings. The younger you are and the healthier you are when applying for term insurance coverage, the less expensive the premiums will be. For some people, term insurance premiums can cost less than purchasing a cup of coffee every day.
4. Common term lengths are 10, 15, 20, & 30 year terms
When choosing a term length. Here are some questions to consider. How many more years until you reach your planned retirement age? How many years until your child becomes an adult? How many years are left on your mortgage?
Now that you understand the difference between Term Life Insurance vs Whole Life Insurance, you will be able to purchase a life insurance policy that will provide the financial security that you need for your family.
Whole Life Insurance vs Term Life Insurance
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