Term Life Insurance vs. Whole Life Insurance:
Choose Your Preference Life insurance will provide you with a financial safety net in planning for the future for you and your loved ones. Of the different types of life insurance policies, two that are most commonly used are term insurance and whole life insurance. Knowing the differences between them will help you make the right choice for your situation and financial objectives.
What is Term Insurance?
Term insurance refers to the type of life coverage wherein the protection is existing only for a specified time; it could be even 10 to 30 years. In this course of time, if the insured’s life is lost, their family will get to cherish the benefits of acquiring death benefits. In that case when the term of the particular insurance gets matured as well as the insured alive, the policy reaches their grave without giving back to them any pay-outs.
Key Features of Term Insurance: Term Insurance will be cheaper than whole insurance. Since it does not accrue cash value, the premium is relatively lesser because it is only an effect for a certain duration in the future.
Simplifications: The term insurance structures are simple. You have paid your premium, which would be given to beneficiaries of the policy if you ever die during the term.
There are so many renewable as well as convertible options within term policies wherein one can opt to renew the policy towards the end of the policy term, or convert that term policy to a whole-life policy with an increased premium payment.
What is Whole-Life Insurance?
Whole life insurance, by name, is coverage of the entire lifetime of the insured, so long as premiums are paid. Besides providing a death benefit, whole life policies also accumulate cash value over time, which can be borrowed against or withdrawn under certain conditions.
Key Features of Whole Life Insurance:
Lifetime coverage: With the whole life insurance policy, there will always be death benefits even when the insurer dies at an older age. The whole life assurance is considered a long term financial planning instrument.
Cash accumulations: Part of that premium payment will form and accumulate as cash values throughout your policy years. You’ll be in a better situation to pay for unexpected matters or for other monetary need.
Fixed Premiums: Whole life insurance premiums are typically higher than term insurance but level and fixed for the lifetime of the policyholder.
Comparison of Term and Whole Life Insurance:
| FEATURES | TERM INSURANCE | WHOLE LIFE INSURANCE |
| COVERAGE DURATION | FIXED TERM (10 TO 30 YEARS) | LIFETIME COVERAGE |
| PREMIUMS | GENERALLY LOWER | GENERALLY HIGHER,FIXED PREMIUMS |
| CASH VALUE | NO CASH VAKUE | BUILD CASH VALUE |
| PAYOUT | ONLY IF DEATH OCCURED DURING TERM | GUARANTEED PAYOUT AT DEATH |
| RENEWABILITY | MAY BE RENEWABLE | NOT APPLICABLE |
Which is Best for You?
Choose term or whole life insurance based on what best suits your needs and financial goals:
Term Insurance Can Be Suitable When:
You want relatively inexpensive coverage for a specified time, say, when raising children or paying off a mortgage
You would like to put your money elsewhere as the savings in term coverage does not build up a cash value.
Whole Life Insurance Can Be Suitable When:
You want insurance for your entire lifetime
You would also want to pass some money for future generations.
You enjoy the cash value accumulation and are willing to pay additional premiums for it.
MY OPINION:
Term insurance and whole life insurance have their own advantages and disadvantages. The best decision for you and your family will be made by understanding your financial situation, goals, and preferences. Consultation with a financial advisor to evaluate your needs and what type of insurance fits within your long-term financial plan may also be helpful.
The right kind of life insurance is a step towards securing the financial future of your family. Invest some time evaluating the right options for you.