5 Basic Facts about Term Life Insurance vs Whole Life Insurance

Term Life Insurance vs Whole Life Insurance

Life insurance, like all other types of insurance, provides protection and security in the event that something goes wrong. In the case of life insurance, this would be the policyholder’s death.

By ensuring that a policy is in place, the insured has helped to alleviate any potential financial burdens (at least for a limited time) by providing financial assistance in the form of a life insurance payout.

However, how much life insurance someone should have is subjective and depends on a variety of personal factors.

The type of life insurance policy selected is also dependent on the individual’s personal circumstances and preferences. There is no one type that is best for everyone.

That’s why it’s important to understand the distinction between the two most common types of life insurance: whole and term.

term Life Insurance vs. Whole Life Insurance
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Read Also: 5 Misconceptions about Life Insurance

Term Life Insurance vs Whole Life Insurance

Term life insurance

Term life insurance pays out a guaranteed death benefit only if the insured person dies during the term, or the time the policy is in effect.

Typically, this ranges from one to thirty years, or until a certain age. Because term policies do not have a cash value component and may expire without paying any benefits, they are much less expensive than whole life insurance.

Whole life insurance

Whole life insurance is a type of permanent life insurance that covers a person for the rest of their life rather than a set period of time.

Whole life insurance provides a guaranteed death benefit as well as a cash value component that can be borrowed against or withdrawn under certain conditions.

The length of a whole life insurance policy is not limited by time frames. A term life insurance policy, on the other hand, provides coverage for a set period of time (typically between 10 and 30 years) chosen by the policyholder.

Also Read: 5 Misconceptions About Life Insurance

If price is the only consideration, term life insurance may be the better option. Sure, it won’t last forever, and it will, by definition, only cover you for a limited time. But perhaps that’s all that’s required.

This is especially true for younger people or those starting a family who want to be protected but don’t want to break the bank in the process.

What is Whole life insurance?

This type of insurance, also known as permanent life insurance, is active for the duration of the insured’s life. There is no time limit on the policy. As a result, premiums are relatively high.

However, there is another consideration with whole life insurance: the cash and investment aspect. A dividend is paid by some whole life insurance policies.

You can also accumulate the policy’s monetary value and cash it out to use for other expenses, debt, and so on.

This type of life insurance should also be viewed as an investment, as the extra money received from premiums is invested for you.

Some features of whole life insurance:

  • Premiums are assured.
  • Savings accumulate over time.
  • A medical examination is frequently required.

What is Term life insurance?

This type of coverage is self-explanatory. It’s limited to a select term or time frame of your life. It won’t last for the policyholder’s whole life span and it will need to be renewed.

There are various types of term insurance available. Terms can be 15, 20, 30 years or some other agreed-upon time frame. If the policyholder dies during one of these terms then the policy is paid out to the beneficiaries. If they don’t, and the policy isn’t upped for another term, then no payout will be issued.

Because of the time constraints and the fact that payments are not invested nor accrue a cash-out value, premiums for term life insurance are generally cheaper than whole life insurance. But each time you renew, expect premiums to rise.

This is doubly true if you get sick or experience a high-risk medical condition during one of your terms. 

Some features of term life insurance:

  • Premiums are subject to change.
  • Some policies can be made whole life.
  • The terms are adaptable.
  • A medical examination may not be necessary.

Term Life Insurance vs Whole Life Insurance

Is it possible to convert term insurance to whole life insurance?

You should be able to convert a convertible term life insurance policy into a whole life policy if you have one. Some companies have a deadline or an age limit for converting your policy, while others will let you do so at any time during the term.

A medical exam may not be required depending on the insurer. However, keep in mind that your new premium will almost certainly be much higher, as whole life insurance is more expensive than term insurance. 

Convertible term life insurance is not available from every insurer. For more information, consult your policy or contact your agent.

Is it possible to convert whole life insurance to term life insurance?

An extended term insurance option allows you to surrender your policy and use the available cash value to purchase an equal amount of term life insurance. If you can no longer afford your whole life insurance premiums, this may be an option to consider.

It is critical to remember that your new term life insurance policy may not last the rest of your life.

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