A life insurance policy has become crucial for everyone as it provides financial protection to your loved ones when you are gone. When choosing the right life insurance policy for your loved ones, most people get confused between the term life insurance and whole life insurance.
So, what is the difference between term and whole life insurance? Let’s find out the answer!
What is the Difference Between Term and Whole Life Insurance – Overview
Term and life insurance are two of the oldest and most popular life insurance plans. As the name suggests, whole life insurance provides coverage till you live. It’s a type of permanent life insurance that stays with you for your whole life. The premium paying terms in whole life insurance are also flexible and gives you more benefits as you grow older.
On the other hand, term life insurance asks you to pay premiums for a certain period. If your policy term is 15 years, you will be asked to pay nine-year premiums, etc. Term life insurance provides coverage while you are alive and your policy is in force.
With more awareness to people, life insurance providers come up with complicated plans that confuse the people around them. To help them get the right life insurance, here we have differentiated these two of the most popular life insurance types i.e. term life insurance and whole life insurance.
Difference Between Term and Whole Life Insurance
Term Life Insurance
Term life insurance is the easiest life insurance plan. A fixed premium and premium paying terms are associated with the life insurance policy. You pay the premiums and, in return, get the assured amount as described upon maturity. Most people choose term life insurance because it comes with an assured death benefit for the beneficiaries.
The term life insurance comes with a specific term i.e. five years, ten years, fifteen years, and so on. Once the policy gets matures, it will be expired, and the total amount, including maturity benefits, will be credited to your account. It’s a simple way to protect your family.
Pros:
Term life insurance has low premiums compared to other types of life insurance. Term insurance premiums come with easy selection as per your income source. You can choose the policy term and premium paying terms as per your income to cover your life.
It’s easy to understand and requires no prior knowledge about other types of insurance to cover your life. You choose the premium terms, premium amount, and assured amount- upon maturity, you will get the said benefits, and the policy will be closed.
Cons:
Limited period protection. Unlike whole life insurance, your coverage is until the maturity date of your policy. Once your policy gets matures, there will be no protection or death benefits given to your family or beneficiary.
It’s a simple insurance plan. You can’t use it for tax benefits or other investments.
Whole Life Insurance
Whole Life Insurance is also known as permanent insurance. Unlike term insurance, the whole life insurance never expires. The policy will remain in force as soon as you pay your premiums.
Moreover, the whole life insurance provides cash value at the end of your policy along with the death benefits. This will add some more funds to its actual amount.
Whole life insurance is associated with the market. When you pay your premiums, half the money goes to the insurance and the other half goes to the investment platforms, where it grows your cash value.
Unlike term life insurance, whole life insurance comes with great flexibility. You can adjust the premium terms and other things in this policy. You can even grow your funds by investing your funds in various investment platforms.
Pros:
Whole life insurance policies allow you to take loans from the funds you have paid as premiums. You can borrow money for your needs and can repay it, or the same will be deducted from the final benefits from the policy. In case of emergency, you can borrow your own money for whole life insurance.
The final death benefit that your beneficiary will get is free from taxes. The loan that you borrow from the policy is also tax-free. You need to understand taxes when you borrow money from your funds.
The premiums are flexible. You can even lock in your premiums for your entire life. Your premium amount will remain the same till you are alive.
Cons:
Unlike the term life insurance, whole life insurance is costlier when it comes to paying the premiums. However, the premium amount is in your control. You can choose the right amount once you pay your first premium.
The loans you borrow from the funds will be reduced from the death benefits. Your beneficiary will get a lesser amount if you borrow some money from the funds paid as premiums.
If you want to surrender your policy and get the funds in your account, then you will be charged surrender fees from the funds.
Which Insurance is Better for Me?
Many people ask the same question as they can’t figure out the actual differences between the term life insurance and whole life insurance. Well, both insurances have their pros and cons. Which policy is better for you depends upon your needs.
If you want to cover your life for a specific term, say 20 years or so, then term life insurance is the best choice. It gives you assurance and protects your life for 20 years i.e. the policy term. Once the policy’s period is over, the policy will be over. You will be given the total funds, including the bonuses.
If you need permanent life coverage till you live, then whole life insurance is there for you. It comes with several benefits while you are alive and also makes your family financially free, as the beneficiary will get the benefits after you pass away.
You have to decide which life insurance is suitable for your needs. If you have a limited source of income, then we would recommend going with the term life insurance as it will give you maturity benefits at the end of the selected term. You can use your funds wherever you want.
The Bottom Line:
Whole life insurance certainly is a good choice for those who want more benefits as it adds cash value as you grow older. On the other hand, term life insurance also comes with many benefits as you will get assurance of funds upon completing your policy terms. You must choose the right insurance type according to your needs and wants.
See Also
What is Universal Life Insurance?
State Farm Medical Insurance
What is Short Term Medical Insurance?
Short Term vs Long Term Disability
Is Long Term Disability Taxable?
