It’s often difficult to decide between traditional term and whole life policies because they have their own pros and cons, but most people end up choosing term life insurance because it’s both affordable and straightforward, yet doesn’t last for life. Whole life insurance is more expensive, but it doesn’t expire.
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Term life insurance is considered most appropriate for the general population but may not be the best type of life insurance for everyone. Whole life insurance is a more appropriate type of life to purchase if you need to provide financial protection for lifelong dependents or complex financial planning needs.
Here, we’ll discuss the differences between whole life and term life insurance and discover which insurance plan will be the best fit for your circumstances and budget
Whole Life and Term Life Insurance – How are They Different?
At first glance, the primary difference between these two life insurance policies is that Term life insurance is cheaper but lasts only 10–40 years. Whole life insurance won’t expire as long as premiums are paid, but it’s considerably more expensive.
Moreover, whole life costs more than term life insurance because it provides lifetime coverage and comes with a cash value component that earns tax-deferred interest over time. Since term life insurance does not have a cash value component, it’s less expensive and less complicated.
For the majority of folks, term life insurance makes sense because their need for life insurance will generally go down over time, but whole life is a better solution for folks needing lifetime coverage and living benefits.
Whole Life Insurance
Whole Life Insurance is permanent insurance, designed to cover you from the day the policy is issued until the day you die. There are fixed premiums and a fixed death benefit with this type of life insurance. Whole life also has a cash value savings vehicle that can be accessed for any reason via policy loans and cash withdrawals (partial surrenders).
| Features and Benefits | Pros | Cons |
| Cash value account | You can withdraw cash from your account by taking policy loans or withdrawals. | There is interest charged on your loan and if it’s not repaid, the balance will be deducted from the death benefit. |
| Periodic Payment Schedule | Most companies offer payment plans of either monthly, quarterly, semi-annual, or annual. | Typically, there is a surcharge if the policyholder pays other than annually. |
| Investment Potential | The cash value account will grow over time by earning compounded guaranteed interest rate and dividends if your policy is a participating policy. | If your policy was purchased from a mutual insurance company, dividend payments are not guaranteed. |
| Value for the Beneficiary | The policy death benefit is paid to the beneficiary and generally on a tax-exempt basis | Any outstanding loans or interest will be deducted from the death benefit |
| Applicant Eligibility | May or may not require a medical exam | Rates may become too expensive due to medical history |
Term Life Insurance
Term life insurance provides coverage over the policy term you select which is generally 5 to 40 years. If you outlive your policy term, your beneficiaries will not receive any money when you eventually die unless you renew the policy or convert it to a permanent policy. It is guaranteed that death benefits remain the same throughout the different policies.
Term life insurance can typically be purchased to match the length of your financial obligation. For example, if you’re a new parent, you might buy a 20-year policy to cover you until your child no longer relies on you financially. To find quotes for term life insurance, you can go online and compare quotes from all of the best life insurance companies.
Most life insurance companies will also have optional insurance riders available to purchase with your term insurance policy. These riders will help you customize your policy by broadening the benefits and adding living benefits if you are diagnosed with a terminal or other covered illness.
Popular Insurance Riders
| Optional Rider | Description |
| Accelerated Death Benefit | Although the accelerated death benefit riders are often included in term life insurance policies at no additional charge. They are a living benefit, which means that you do not need to die to get the benefits. Generally, the insurer will advance a large portion of the death benefit to the insured if he or she is diagnosed with a terminal or other covered illness. |
| Disability Waiver of Premium | This very popular rider is a provision of your insurance that states your insurance company will waive your premiums when you are disabled and unable to work. Your disability waiver lasts for a predetermined amount of time which is stated in the policy contract. |
| Guaranteed Insurability Rider | Two problems may arise should you wish to buy more life insurance; you may not be able to afford it in the future, or you might not medically qualify for it. Thankfully, the guaranteed insurability rider will allow you to increase your insurance coverage at certain intervals without a requirement for additional medical underwriting. |
| Accidental Death Benefit | This is one of the most popular optional riders because it allows for the applicant to increase the death benefit if death is the result of an accident. It is also one of the least expensive riders available. |
| Child Term Rider | The child term rider provides for the insurer to cover all dependent children in the household with term life insurance but the insured is only charged for one child. Additionally, any child who is aging out of the rider’s coverage can convert the term insurance to permanent insurance without having to offer proof of insurability. |
| Return of Premium Rider | Although the return of premium rider can be expensive for older applicants, it should still be considered. This rider provides for the insurer to refund all premiums to the insured if the insured outlives the term of the policy. The returned premium will be paid in a lump sum and is tax-exempt to the insured. |
Cost of Insurance: Term versus Whole Life
As we mentioned earlier in our comparison, term life insurance can be considerably less expensive than whole life insurance because you are purchasing a death benefit without the cash-value component.
Here is a simple rate comparison for a healthy male and female non-smoker. The policy comparison is for a $500,000 death benefit.
Term versus Whole Life Annual Premium Comparison
|
Age |
Gender |
30-year Term |
Whole Life |
|
30 |
Male |
$358.79 |
$4,308 |
|
30 |
Female |
$304.32 |
$3,802 |
|
40 |
Male |
$602.84 |
$6,388 |
|
40 |
Female |
$482.27 |
$5,467 |
|
50 |
Male |
$1,529.29 |
$9,875 |
|
50 |
Female |
$1,140.04 |
$8,347 |
As you can see from our comparison chart, Whole Life insurance costs significantly more than term life insurance however, if you elect not to renew or convert your term life insurance, your premiums remain with the insurer when the policy expires.
On the other hand, if you purchase whole life insurance, your policy will last a lifetime as long as you pay the required premiums, and if you decide to cancel your policy before you die, the funds that have accumulated in your cash value account are yours.
The Bottom Line
Now that you understand the difference between Whole Life and Term Life insurance you should be better prepared to decide which type of policy will best meet your needs. If you are still unsure which policy will work best for you, call an insurance professional at EveryLifeMatters360 at (516) 404-0342 to find out more about whole life versus term life insurance and get free and confidential quotes on either type of coverage.