What is the Difference Between Whole and Term Life Insurance?

When trying to decide whether you ought to purchase whole or term life insurance, there are several things that you need to consider. What kind of life insurance you decide to take out is a personal decision that needs to be based on what is best for you and your family. What are you able to take on financially now? What kind of financial support will your beneficiaries need when you are gone? What are your business goals? Unlike many things in life, life insurance can be extremely flexible, meaning that it is available – in some capacity at almost any budget. Life insurance is also a powerful financial vehicle that can assist policyholders and their beneficiaries in numerous ways and meet a variety of financial objectives. Whether you want to provide your family with financial security, build financial assets or leave your loved ones a legacy.

 

Here are some of the main features and differences of term and whole life insurance.

 

Features of Term Life Insurance

 

  • Unlike whole life insurance, term life insurance only provides death benefits
  • Death benefits are only paid if the policyholder passes away while the term is in effect.
  • Term life insurance is the most accessible and most affordable life insurance to buy
  • It can be purchased for a specified timeframe, also known as a term. This could run anywhere from 5 to 30 years.
  • Term life insurance becomes increasingly expensive as you age.
  • The term has to be renewed if the policyholder wants their life insurance coverage to be extended past the original term length.
  • Term life insurance can be used as a temporary form of additional coverage with a permanent life insurance policy
  • Term life insurance offers policyholders the option of converting it to a whole life insurance policy.

 

Features of Whole Life Insurance:

 

  • Whole life insurance provides lifetime coverage for the policyholder.
  • Unlike term life insurance, whole life insurance provides a cash value accumulation that grows throughout the lifetime of the policy as well as death benefits.
  • Generally, applicants have to go through a medical exam before being approved at an affordable price point.
  • Applicants can purchase whole life insurance without a medical exam; however, it is at a significantly higher cost
  • It takes well over 10 years to build up a substantial cash value.
  • Whole life insurance is considered by many insurance professionals to be a good choice for estate planning.
  • A whole life insurances cash value is based on how much the return on investment is worth.
  • A portion of the life insurances cash value can be withdrawn or borrowed throughout the life of the policy.
  • Whole life insurance generally has higher premiums than term life insurance initially, however, it can potentially save the policyholder money over the life of the policy.

 

Whole Life or Term Life Insurance Variables and Considerations


When deciding between whole life or term life insurance, several variables need to be taken into account. A qualified and knowledgeable life insurance agent will be able to help you sort through and evaluate each of the following factors and aspects of your circumstances. This will help you to determine whether term life or whole life is a better option for you. The factors that need to be considered  include:

 

  • How old are you?

  • What is your current health status?

  • What are the financial needs that the family will face?

  • What are your plans for funeral and death expenses

  • Do you have children? How old are they?

  • What are the long-term health expenses that you might face in the event of a severe illness?

  • What are your current debts?

  • What are your retirement plans?

  • What are the future needs of your family? Be sure to consider things like their future college tuition.

  • Do you need any more money to live off of during your retirement years?

  • What are your concerns and plans regarding setting up an estate and ramifications for estate taxes?

  • Do you have any intention to set up a trust as part of your will?

  • Do you have any intention to donate life insurance proceeds to a charitable organization?

  • What are your feelings on potentially paying into a term policy, but never receiving any of that money back?

 

How Should I  Compare Term Life and Whole Life Insurance?


Now that we have gone through the different details and factors that need to be considered when choosing between whole and term life insurance you will probably want to compare them side by side to provide you with a better idea of what they actually cost. To do so, you will need to compare both the short and long-term costs of having a whole life insurance policy and a term life insurance policy. Remember these costs are based on factors like your age at the time of application, the monetary value of the policy you want to purchase, and whether or not you have a pre-existing medical condition or if you are a smoker.


You may find that your out-of-pocket costs for whole life insurance are significantly higher, which can seem quite daunting when you compare them to the price of term life insurance. However, it is essential to remember that this price difference is because the money that you pay into term life insurance premiums that are only there to provide a primary death benefit to your beneficiaries – and only if you pass away during the term of the policy. Meanwhile, the money that you invest in whole life insurance premiums build cash value that can be used either later in life, or that will add to the death benefit payout that your beneficiaries receive. The percentage of these costs that will actually go into the cash value account increases as the years go on. This is because many of the administrative costs that are associated with setting up the policy and the investments occur early in the life of the policy.



How do You Know if You Should Purchase Both Term Life Insurance and Whole Life Insurance?



Did you know that you can own both term and whole life insurance policies simultaneously? Many people are surprised to find out that this is a viable option. Generally, the people who are considering this option already have a whole life policy, but for whatever reason, they want to increase their potential life insurance coverage for a particular time span. By purchasing term life insurance in addition to their already existing whole life insurance policy, they do just that.



In some other cases, you might already own a term life insurance policy but feel that you want to invest some more money into a long-term investment. Often this is because of estate issues or for retirement preparation. When this happens,  purchasing a whole life policy which has a cash value accumulation feature might be the best way to go.



How do You Know if You Ought to  Convert Your Term Life to Whole Life Insurance?

 

The majority of term life insurance policies do allow you to convert your already existing term life insurance policy into a whole life insurance policy. How do you know if this is the right move for you? How do you know if it is the right time for you to transition from one form of insurance to another? There are a multitude of reasons that you might want to consider converting your term life insurance policy to a whole life insurance policy. These include:

 

  • If your term life policy is about to reach its expiry date, and you are over 50 years old.
  • If you want to extend your life insurance coverage, but the premiums that you would have to pay for term life insurance are too high due to your increase in age.
  • If you are in the midst of setting up an estate.
  • If you are concerned about estate taxes.
  • You are in the midst of setting up or hoping to set up a trust in your will.
  • If you feel that you need a non-taxable investment option.

 

Converting from term life insurance to whole life insurance can be a fantastic option if you are looking to continue your life insurance policy while also building cash value that you have the opportunity to borrow from. There are a number of different ways that this kind of life insurance policy can be structured. It will depend on you and your families needs and goals. For this reason, it is vital that you work with a life insurance professional who can answer all of your questions and help you make the best choices.