Term vs. Whole Life Insurance: Differences, Pros, and Cons
Life insurance is an investment toward the future, and like any investment, requires research when deciding what is best moving forward. In the same vein, life insurance policies can aid your family in the event of either your death or serious incapacitation.
With these considerations in mind, finding the right policy can depend on numerous factors. For example, some considerations might be between choosing a term life insurance policy or a whole life insurance policy.
Term vs. Whole Life Insurance
Term life insurance and whole life insurance are mainly differentiated by their duration. Term life insurance policies set coverage for the policyholder for a specified time, usually between ten and thirty years. The estate receives a payout if the beneficiary passes during the fixed period. In contrast, whole life insurance covers the beneficiary for the rest of their life.
When choosing between the two, there are further factors to consider, such as financial goals. Besides the actual content of the policies, the biggest difference between term and whole life insurance is the cost. Demographic information and medical history can influence the cost. In addition, premiums are higher for whole life insurance as the payments accumulate over time, whereas term life insurance is a “use it or lose it” situation.
About Term Life Insurance
Term life insurance policies provide coverage for a specific length of time. Also known as “pure life insurance,” its sole purpose is to provide a payout to surviving family members upon your passing. Term life insurance policies have no cash value, allowing for more affordable premiums. Term life insurance policies might be attractive options for new families who want to prepare themselves for the unexpected or seniors without an existing plan.
When considering term life insurance, some topics to reflect on might include what life will look like for your family by the end of the term. Hopefully, kids will be out on their own with college debts and houses paid off, so what support will a surviving spouse need financially?
Pros
There are multiple positives to term life insurance, including cost efficiency and customization. The lower cost is partly because a payout only occurs if death occurs during the set time frame, usually in increments of decades. Because everyone’s situation differs, term life insurance policies tend to be customizable between term length, and costs can vary depending on lifestyle.
Cons
There are some drawbacks to term life insurance, such as the possibility for loss of coverage. While the hope is that everyone lives a long and healthy life, if someone outlives the term, they are no longer covered. There is no reimbursement for the money already put into the plan. Because term life insurance is not necessarily a financial investment, the value does not increase over time.
About Whole Life Insurance
Whole life insurance is a type of life insurance that covers the beneficiary for life. Whole life insurance accounts tend to act more like investments as the policy accumulates value over time, can be borrowed from, and can even be sold on a secondary market. In some instances, the payouts for these situations are tax-free.
A death benefit for a life insurance policy is certain unless the policy has been sold or lapsed. Because of this, the premiums tend to be higher in cost. However, the peace of mind and familial financial security tend to outweigh the cost for some.
Pros
Some benefits to whole life insurance policies include consistency, guaranteed benefits, and accumulated value over time. A portion of the premium is put towards investments, which is how the value compounds. Additionally, whole life insurance can become useful to the policyholder while still alive, such as in the event of severe illness or disability.
Cons
Some downsides to whole life insurance include the cost compared to term life insurance and lack of term customization. Another consideration is needing a health check-up beforehand. While term life insurance sometimes asks for a health screening, it’s not always required, whereas screenings for whole life insurance are required.
Finding the Right Coverage
While no one can tell you what is right for your family, the hope is these considerations can steer you in the right direction of choosing between term or whole life insurance. Term life insurance is more cost-efficient, but there is always the chance that coverage will lapse. On the other hand, whole life insurance is more expensive but provides more in-depth coverage.
If you still have difficulty deciding, schedule a consultation with Matador Insurance. One of our experienced agents can walk you through the steps needed to provide you and your family with life insurance coverage. Don’t wait; the sooner a decision is made, the sooner you’ll have peace of mind for yourself and your loved ones.
