Shopping for and then choosing the right life insurance policy is critical for financially protecting your loved ones. Learning about the various insurance products is also important and will help you make an informed decision.

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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).

Like other insurance professionals, we represent many companies who offer various types of insurance so it’s important to us that we help you find a life insurance policy that is right for you.

Here, we’ll drill down into the difference between whole life and term life insurance.

What is Term Life Insurance?

If you’re looking for a way to protect your loved ones from financial insecurity after your death, you have two options: term life insurance or permanent life insurance. Term life insurance provides coverage for a set amount of time and pays out a designated amount if the policyholder dies during that period.

Whole life insurance is more expensive, but it usually offers coverage for the lifetime of the insured. There are some other crucial differences between these two types of insurance that you should consider.

The difference in cost between whole life insurance and term life insurance varies, but term insurance is generally significantly less than whole life insurance.

Term costs much less because it is considered temporary coverage that is typically available in policy terms of 1, 5, 10, 15, 20, 25, 30-years, and in some cases even 40 years. Unlike whole life insurance, term insurance does not have a cash component so all of the premium paid in is for the cost of life insurance, any additional riders, and policy fees.

Term is especially popular for young families who have typically created substantial debt after buying a home, multiple cars and have outstanding student loans.

Other considerations for providing financial protection for a family if the primary breadwinner dies unexpectedly are living expenses for surviving loved ones, college expenses for children, mortgage payoff, and financial contribution for the surviving spouse’s retirement plan.

It is not uncommon for a young family to need one or two million dollars worth of coverage but with term life insurance, a huge death benefit is generally not out of reach in today’s competitive marketplace.

How Much Does Term Life Insurance Cost?

Like any other life insurance, the rates for term life insurance are based on 4 primary factors:

  1. Age and gender of the applicant
  2. Current and historical health of the applicant
  3. The amount of the death benefit
  4. Number of years you need to be covered

Here is a chart for Term Life Insurance for a 30-year-old male non-smoker in very good health:

Policy Term$500,000$1,000,000$2,000,000
10-years$14.61$21.39$37.25
20-years$19.30$31.45$58.23
30-years$33.35$58.66$111.78
These are actual rates but are subject to medical underwriting and company approval.

Term Insurance Riders to Broaden Coverage and offer Living Benefits

Optional riders are available to help the applicant customize his or her coverage and obtain living benefits. Although these riders vary by company, applicants generally choose one or more of the following:

Optional RiderDescription
Accidental Death BenefitThe ADB rider provides for the insurer to pay an additional death benefit if the insured’s death is the result of an accident.
Accelerated Death BenefitThis rider provides for the insurance company to advance a portion of the death benefit to an insured who has been diagnosed with a terminal, critical, or chronic illness. When the insured dies, the advance will be deducted from the death benefit payable to the beneficiary.
Waiver of PremiumThis rider provides for the insurer to waive periodic premiums if the insured becomes disabled and unable to work.
Children’s Term RiderThe CTR allows the applicant to purchase term insurance for every dependent child in the household and discounted rates.
Return of Premium RiderThe ROP rider provides for the insurance company to refund all premiums paid by the insured if he or she outlives the policy term. The payout is a lump sum tax-free payment.
Most optional riders require additional premium unless the benefit is built into the core coverage of the insurance policy.

The Pros and Cons of Term Life Insurance

ProsCons
Inexpensive cost of insuranceTemporary coverage
Straightforward and easy to understandNo cash-component
Policy terms of 5 to 40-yearsRenewals are annual term and increase as you age

What Is Whole Life Insurance?

Since whole life insurance provides permanent coverage, it comes with a much higher premium but also includes an investment component (cash value) that earns tax-deferred interest.

Additionally, if you purchase “participating” whole life insurance from a mutual insurance company, the company splits up profits among the policyholders rather than stockholders. These profits are known as dividends and can be taken as cash, used to purchase paid-up life insurance, applied to future premiums, or left on deposit with the insurer while earning interest.

When choosing between term and whole life insurance, there are a few additional points to consider. With whole life insurance, the premiums never change and the death benefit is guaranteed. There is no set term length. Lastly, your cash value will grow in an account that earns a guaranteed interest rate and can be accessed by the policyowner via policy loans or partial surrenders.

The Pros and Cons of Whole Life Insurance

ProsCons
Lifetime insurance coverageHigher premiums
Guaranteed tax-deferred interest earned on cash value accountNon-Flexible premiums or death benefit once the policy is issued
Access to cash value for any reason 

How to Know Which Policy type to Choose

Most life insurance shoppers choose a policy type based on the premium amount they can afford. Although this is a critical part of your purchase decision, other factors about each policy should be considered as well.

We suggest that you consider the following questions and then check the ones that apply to you, your circumstances, and your budget:

ConsiderationYesNo
1.Are you looking for enough life insurance to replace your income for surviving loved ones?  
2.Are you on a tight budget and concerned only about a low premium?  
3.Do you prefer life insurance that is permanent?  
4.Do you prefer a policy with a cash-value account that you can access when needed for any reason?  
5.Would it be important to you to convert your temporary policy (term) into a permanent policy (whole life) later in life when you don’t need as much coverage but want it for the rest of your life  

If you checked the “yes” box for questions 1, 2, and 5, term life insurance will likely be the choice.

In Conclusion 

Certainly, there are more aspects to consider when considering the Difference Between Whole Life and Term Life Insurance, so insurance shoppers should contact an independent insurance professional like EveryLifeMatters360 who represents multiple highly-rated insurers but works for none of them.

An independent insurance professional is more likely to put the client’s needs above the insurer’s needs first and foremost and would make their services available on a long-term basis.