Term Life Insurance Vs Whole Life Insurance

Are you baffled between term life insurance vs whole life insurance? Or are you looking to choose the best one to secure your life from uncertainty? If so, this guide will clear all your doubts regarding the term life insurance vs whole life insurance. 

This blog will let you know the difference between the term life insurance vs whole life insurance. But to begin with, let’s learn about it!

What is Term Life Insurance?

The term itself says that life insurance offers coverage for a limited or specific time frame, usually lasting approximately 30 years. If the insured person passes away during that period, their family will receive the total life cover or the sum insured amount.

For many people, term life insurance is a way to ensure that their family will live a safe, better, and happy life by paying the mortgages (if any) after their death from the amount they receive from the insurance company.

What is Whole Life Insurance?

Whole life is similar to permanent life insurance, which is far different from term insurance in two ways, that includes:

• It offers some cash value as an add-on to the death benefit, which can be a huge source of emergency funds for future goals.
• It never expires till the time you pay the premium.

Overall, whole life insurance offers complete coverage for your life. It usually costs more, as it is an investment that grows throughout your lifetime and is tax-free.

Term Life Vs Whole Life Insurance 

Your financial goals significantly influence choosing between term life insurance vs whole life insurance. We’ll motivate you to observe what type of financial security you want throughout your lifetime, allowing you to access various factors, especially costs and the long-term value of term and whole life insurance.

Term Life Insurance 

a. Costs

Cost is one of the primary differences between term life insurance and whole life insurance. The cost factor of both plans depends on the gender, age, and medical history of the policyholder. The cost of term life insurance is usually low.

b. Benefits

The insured person’s family will get the death benefit if the policyholder dies within the term.

c. Renewability

Several policies are renewable, but premiums will vary according to the person’s age. You need to pay a low premium if your age is less and a high one if your age is older.

d. Good for

Suitable for the ones who want coverage for a particular time, like while paying off a mortgage or raising children.

Whole Life Insurance 

a. Costs

Whole life insurance has higher premiums as compared to term life insurance because the payments are put into an account to offer more security.

b. Benefits

It pays the insured person’s family a death benefit and can be a long-term investment.

c. Borrowing Option

You can borrow the amount against the cash value which the policy holds.

d. Cash Value

Some of your premiums go into your savings account, increasing over time.

e. Good for

Idle as an investment component and for lifetime coverage.

Pros and Cons: Term Life Insurance Vs Whole Life Insurance

Let’s understand the pros and cons of term life insurance vs whole life insurance to help you understand it better.

Pros: Term Life Insurance

a. Simplicity

It provides a simple life cover without any confusing features. If you know how homeowners insurance or car renters insurance works, then term life insurance will be very simple for you. You pay premiums according to the amount of coverage you buy. Similarly, the insurance company pays you if their conditions are met (when you pass away). The beneficiaries whom you have mentioned in the policy receive the amount. 

b. Flexibility

You can pick term insurance according to your requirements.

c. Affordability

One can buy term life insurance at cheaper rates than whole life insurance. The average cost of term life insurance is approximately $30/month for a healthy 35-year-old who is looking for coverage of $500,000 for a 20-year term. 

d. Easy Payment of Premiums

The premium amount in term life insurance is based on factors like policy duration, health, and age. However, after calculating the premium, that particular amount will remain “locked in” until the duration of the policy you have opted for—even for 30 years—as per Heaven Life. 

e. Convertible

Some policies allow conversion to whole life insurance.

Cons: Term Life Insurance

a. No Cash Value

Do not accumulate any investment or savings component after the policy duration. If you seek to protect your family with financial obligations in case of death, you will get that with a term insurance policy.

Wait a second! You won’t get the broader package of financial advantages with the cash value component of a whole-life policy.

b. Temporary Coverage

It only covers a particular time and has no live cover after the policy duration expires. Just like a whole life insurance policy, a term life insurance policy has a fixed duration (maximum for 30 years).

The policy could end with never getting the life coverage amount even after paying years of premium.

c. Increasing Cost

Premiums can increase over time depending on the policyholder’s age. That’s why buying a policy at an early age is suggested to avoid huge premiums.

Pros: Whole Life Insurance

a. Cash Value

One can borrow when the portion of your premium creates a cash value. You can withdraw that amount once the cash value reaches a particular threshold. These withdrawals are usually tax-free. 

Moreover, you can access the cash value if you don’t want to continue or cancel the policy. Consequently, you’ll pay a penalty or withdrawal fee, and the family will not receive the death benefit.

b. Investment Component

The cash value increases over time and offers some financial resources.

c. Fixed Premiums

The premium amount remains the same throughout your life.

d. Lifelong Coverage

It offers a death benefit regardless of your death. Once you buy a policy, it will remain in effect for the rest of your life.

This can be advantageous because life is not predictable. The financial needs of your family 20 or 30 years from now can vary from what you expect. Therefore, a whole-life policy ensures you’ll still have coverage regardless of your position.

Cons: Whole Life Insurance 

a. Cash Value

Unlike with other policies, your beneficiaries will not receive the amount you invested after your death. They will only receive the death benefit, while the insurance company keeps the cash value.

b. Lower Returns

The return on the cash value component is usually less than other investments.

c. Higher Cost

It is more costly than term life insurance. According to the study, the average premium of whole life insurance is 20 times higher than the average premium of term life insurance. 

d. Inflexibility

Less flexible when it comes to adjusting premiums and coverage.

e. Complexity

They tend to be more complex because of the features and investment component. There are add-on options for cash value insurance. 

As per Guardian Life, these include valuable life insurance, indexed life insurance, and universal life insurance. Each policy builds its cash value in a different manner, providing distinct levels of rewards and financial risk. So, if you are looking for an insurance policy that offers a cash value component, it becomes important for you to understand all the options mentioned here.

f. Deduction of Outstanding Loans

Loans against the cash value component add flexibility and functionality to a life insurance policy. However, as per Ethos Life Insurance, if these loans are not paid during your death, the balance will be reduced from the policy’s death benefit.  

Let’s better understand the difference between Term Life Insurance Vs Whole Life Insurance through a comparison table:

Comparison: Term Life Insurance Vs Whole Life Insurance

This comparison table of term life insurance vs whole life insurance will help you choose the best insurance as per your financial goal.

Last Thought 

Now that you know the difference between term life insurance vs whole life insurance, it will be easier for you to choose the one you want. So, compare the premium and total life cover for each type and decide what to opt for. No one can predict the future, so it becomes important for you to opt for insurance that could be a saviour for your family after you.

Don’t forget to check out this blog: Understanding Different Savings Account Options