Term vs Whole Life Insurance

Whether you’re looking to ensure your child is able to go to college or you want to leave your spouse enough money to cover the remainder of your mortgage loan, life insurance can give you the peace of mind that comes with protecting your loved ones. If you’re just beginning your search for life insurance, you might be surprised at the number of options available. Explore both term and whole life insurance using the guide below.  

What Is Whole Life Insurance?

Whole life insurance is a type of permanent life insurance. As the name suggests, permanent life insurance does not have a set expiration date — as long as you pay your premiums on schedule, your beneficiaries are guaranteed to receive a death benefit. This is why whole life insurance policies are so expensive when compared to term life insurance options.

Whole life insurance policies also include a cash component you can access during your lifetime. Each time you make a premium payment, your insurance provider will divert a percentage of your payment to a savings or investing account. This account may accumulate interest or dividends over time. If you run into financial hardship, you can borrow against the balance of your policy’s cash value. 

Benefits of Whole Life Insurance

A number of benefits come with choosing a whole life insurance policy, including:

Policies Are Guaranteed to Pay a Death Benefit

The most obvious benefit you’ll gain when you invest in a whole life insurance policy is the guaranteed death benefit. Because these policies follow you and ensure a death benefit no matter when you die, your beneficiaries will receive your full death benefit. The only circumstances when your beneficiaries would not get your death benefit is if you lie on your initial application in some way or if you stop paying your premiums.

Policies Have Predictable Payments

Unlike some other types of life insurance, the rate you’ll pay for your whole life insurance policy will not change as you age. This allows you to lock in at a rate you know you can afford, as you can easily predict how much you’ll spend in premiums every year.

You Receive a Partial Return on Your Investment

Unlike term life insurance, whole life insurance accumulates a cash value over time. Each time you make a premium payment, a portion of the money you spend is returned to you by being deposited into a savings or investing account. You can access this cash value portion of your policy while you’re still alive, making withdrawals from your accumulated balance or taking out loans against the value of your account. Depending on when you purchase your policy, this cash value can grow substantially over time and eventually become an important part of your retirement savings.

You May Receive Dividends From These Policies

The cash value portion of your whole life insurance policy will be guaranteed to grow at a specific rate depending on the insurance company’s calculations. However, if the company sees a higher return than anticipated, the company might choose to pay you an extra dividend into your cash value.

Who Should Buy Whole Life Insurance?

Whole life insurance is significantly more expensive than term life insurance, which means it will be a less popular choice. However, if any of the following applies to you, you might want to consider investing in a whole life policy.

You Want to Guarantee That Your Beneficiaries Are Paid a Death Benefit

The most obvious benefit of investing in a whole life insurance policy is that your beneficiaries are guaranteed to receive your death benefit. If your beneficiary is a spouse who you know needs your income to pay your mortgage or a dependent who you take care of, the guaranteed death benefit that comes with whole life insurance policies can be worth the additional expense.

You Can Afford Whole Life Insurance

Whole life insurance comes with a number of benefits, including a guaranteed payout for your beneficiaries and a cash value portion that returns a portion of your premiums. However, whole life insurance is expensive — especially when compared to term life insurance policies. Be sure to collect a few quotes from competing life insurance providers before you decide to invest in a whole life insurance policy to be sure that you can afford to continue paying your premiums. 

What Is Term Life Insurance?

Term life insurance is a type of life insurance that covers you only for a temporary period of time. The “term” in term life insurance refers to the number of years your policy is active. For example, if you signed onto a 20-year term life insurance policy in 2024, you’ll have life insurance coverage until the year 2044 as long as you pay your premiums.

If you die when your term life insurance is active, your beneficiaries will receive your death benefit. If you outlive your policy, your life insurance company will close the policy at the conclusion of your term. Term life insurance policies are significantly more affordable than whole life insurance policies because there is no guaranteed death benefit payout. 

Benefits of Term Life Insurance

If you’ve assumed that you cannot afford to add life insurance to your list of home protections, you may want to explore term life insurance. Some of the benefits that come with investing in a term life insurance policy include:

Affordable Premiums

Term life insurance does not guarantee a payout to your beneficiaries, which makes it significantly more affordable than whole life insurance. If you’re working on a strict budget, term life insurance will likely be the right insurance choice for your needs.

May be Converted Into Permanent Life Insurance

Many life insurance companies provide you with the option to convert your term life insurance policy to a permanent life insurance policy when your term expires. This provides you with an option to guarantee your beneficiaries a payout without paying consistently high monthly premiums for a whole life insurance policy.

Easier to Understand

If you don’t have much time to compare and research life insurance policies, you’ll usually be better off choosing a term life insurance policy over a whole life option. Because these policies do not contain a cash value component, they are relatively low maintenance and require less research to purchase. 

Who Might Purchase Term Life Insurance?

If you’re looking for a more affordable way to invest in your family’s future, a term life insurance policy might be right for you. People who may want to consider a term life insurance policy include:

You Are Shopping for Life Insurance on a Budget

Term life insurance is significantly more affordable than whole life insurance. If you’re shopping for insurance coverage on a budget, be sure to consider term life insurance.

You Are Looking for Temporary Protection

In some cases, you may want to purchase life insurance only for a specific amount of time. For example, if your primary reason for buying life insurance is to ensure that your spouse will be able to pay off your mortgage if you die unexpectedly, you might purchase a term life insurance policy that follows your amortization schedule. 

Compare Life Insurance

Not sure where to begin your search for the right life insurance coverage? You might want to consider beginning by getting a quote from a few of the following recommended insurance providers.  

Finding the Best Life Insurance Coverage 

No matter which type of life insurance you purchase, it’s always a good idea to begin your search for coverage as soon as possible. Comparing quotes from multiple insurance providers helps ensure that you aren’t overpaying for your coverage and helps secure the lowest rate possible. You might be surprised by just how affordable life insurance can be when you begin comparing your options early.   

Frequently Asked Questions