Term and whole life insurance are two of the oldest types of life insurance and remain among the most popular. Both term and whole life insurance policies enable you to leave a cash benefit for your beneficiaries after you die. Term life insurance is a less expensive insurance policy that has an expiration date. Whereas, whole life insurance costs a little more but lasts for the life of the insured as long as the premiums are paid.
Choosing between term and whole life insurance requires understanding how these two types of life insurance work. Once you know how they work and their benefits and drawbacks, you can develop a strategy and secure life insurance coverage that works for you. Keep reading to learn the difference between term & whole life insurance and their pros and cons.
What Is the Difference Between Term vs Whole Life Insurance?
Term life insurance is one of the most common types of life insurance, providing a death benefit for a specified period of time, typically 10 to 30 years. You’ll pay a set premium for the amount of coverage you want during that time, but if you pass away after the term life policy period expires, your heirs will receive nothing. Term life insurance is also known as pure life insurance because it is simply insurance with no savings or investment component.
The other major type of life insurance is whole life insurance, which is designed to last your entire life, regardless of how old you are when you die. While you may have to pay premiums on your policy for several more years than with term life, your monthly premium amount is fixed at the start of your policy and never changes.
Pros and Cons of Term Life Insurance
Pros
- It is easier to comprehend than “permanent” policies.
- Term insurance is typically much less expensive than other types of life insurance.
- It is possible to convert it to permanent coverage.
Cons
- Protection is only available during the policy’s term.
- Premiums increase upon renewal.
- The policy cannot be borrowed or cashed in.
- It cannot be used for wealth accumulation or tax planning strategy.
Pros and Cons of Whole Life Insurance
Pros
- Since it is permanent life insurance, the coverage never expires.
- You can borrow against your whole life insurance policy to meet future financial needs.
- Premiums are guaranteed for the rest of your life.
- Loans, like death benefits, are usually exempt from taxation.
- Can borrow or cash in on the policy.
Cons
- If you have to cancel the policy within the first few years, you may be charged a surrender fee.
- Whole life insurance is significantly more expensive than comparable term policies.
- Your death benefit will be reduced if you have any outstanding loans.
It is a difficult task to choose between term and whole life insurance plans, but make sure that you have some type of life insurance coverage in place sooner rather than later. And besides, life insurance only gets more expensive as you get older.
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