Wondering about the term vs. whole life insurance pros and cons? While term life insurance and whole life insurance both often come with a tax-free cash payment to help protect your family financially, they each offer different advantages for different coverage needs. If you’re weighing the pros and cons of term life insurance and whole life insurance, here’s a closer look at how each option works.
Wondering about the term vs. whole life insurance pros and cons? While term life insurance and whole life insurance both often come with a tax-free cash payment to help protect your family financially, they each offer different advantages for different coverage needs. If you’re weighing the pros and cons of term life insurance and whole life insurance, here’s a closer look at how each option works.
With term life insurance, you get to choose how long the policy lasts. Generally, premiums are guaranteed to be level for a set period of time, and then may increase after that time. That means you can cover financial obligations for a certain period, like while you’re paying off a mortgage or have children who depend on your income. You can also choose from a variety of coverage amounts and monthly premium options, and the premiums are typically more affordable for term life insurance vs. whole life.
If your term life insurance policy is still active when you die, the death benefit will go to your beneficiary or the person or people you choose to receive those benefits. These can be used for day-to-day living expenses, credit card debt, mortgage payments, or any other financial obligations. However, if you live past your policy term, then your policy simply expires and you stop making payments. In some cases, you may be able to renew your term life insurance if you need more coverage.
The benefits of whole life insurance vs. term are just as the name suggests. Whole life, which is a type of permanent life insurance, offers lifelong protection. As long as you pay your premiums for whole life insurance, your family or loved ones receive a tax-free lump cash payment after you die.
Whole life policies have the added benefit of having a cash value that grows over time. This cash value is tax-deferred, which means you generally don’t have to pay taxes until you access it. If you decide that you no longer need life insurance and end your policy, any cash value you’ve earned is now yours. You may also be able to borrow from the cash value during your lifetime.
| Term Life | Whole Life | |
|---|---|---|
| Length of Coverage | You choose a term length (10, 15, 20, 30 years) based on your needs. | Your coverage lasts your lifetime, as long as you pay your premium. |
| Premiums | Plans are a flexible, affordable way to get coverage exactly when you need it. | You may pay a higher premium, but this is a permanent solution for lifetime coverage. |
| Medical Exam | A medical exam is not always required. | A medical exam is usually required — but not with Fidelity Life. |
| Cash Value | A term life policy does not build a cash value. | A whole life policy can build tax-deferred cash value. |
| Policy Options | Some term policies let you increase or decrease your coverage and premiums over time to meet your family’s evolving financial needs. | Whole life insurance helps prepare you for end-of-life expenses and allows you to pass on an inheritance to your family and loved ones. |
It’s no secret that whole life insurance costs more than term life. Since whole life plans offer lifelong protection and come with a cash value component, premiums tend to be much higher than term life. That said, if you’re comparing the term vs. whole life insurance cost, there are a few factors to keep in mind that will influence the price you’ll pay for any policy.
Your age and gender: The longer your life expectancy may be, the less you’ll have to pay for whole life insurance. That’s why whole and term life insurance becomes more expensive as you get older. Similarly, you may pay less for your life insurance if you’re a female since females tend to have a longer life expectancy.
Your health: When you buy a life insurance policy, you’ll typically undergo an underwriting process where the insurance company examines your medical records. If you’re healthy, then you’ll typically pay less than someone who is not healthy. For example, an ultramarathon runner can generally expect lower premiums than someone who’s a smoker. If there are any major blips in your health history, such chronic illness, you may pay significantly more or only qualify for certain plans.
Term length: The shorter your term length, generally, the less you’ll pay for life insurance. This is another benefit of having term life insurance: You only pay for the policy period that you’re purchasing. With whole life insurance, you’re paying for insurance for your entire lifetime, so the premiums for these plans are much higher than term life.
Coverage amount: Whether you’re buying term or whole life, a higher payout to your beneficiary means paying more now in premiums. For example, a $500,000 payout will come at a higher cost than a $250,000 payout. Depending on your age, though, the differences in many of these tiers are typically small, though they do add up.
You may have heard that life insurance is cheaper when you’re younger, which is true. But not many young people think about buying life insurance. On the other end of the spectrum, many people who are older wonder if it’s worth getting life insurance at all. So, what kind of insurance do you really need at each age? Is term or whole life insurance better for seniors?
Here’s what to consider when weighing the life insurance pros and cons between term and whole life insurance at different stages – and ages – of your life.
Term or whole? Term
Rates? Extremely affordable
Why? A 30-year policy can carry you through most major changes in your life, such as marriage, kids, etc. If you’re currently single, term life can ensure that any debts you incur don’t fall on your family’s shoulders in the future.
Term or whole? Usually term, possibly whole
Rates? Affordable
Why? Many parents choose term life insurance to provide protection while they’re raising kids, paying off a mortgage, or paying for college. Term is more popular, but whole life insurance can make sense for certain situations. For example, you may want to consider whole life insurance if you have a child with disabilities who will need lifelong financial support to ensure they’re protected.
Term or whole? Usually whole, possibly term
Rates? Moderate
Why? For many life insurance companies, term life insurance is still available up to the age of 70. Do keep in mind that this is temporary coverage, and you may only qualify for shorter term lengths. The question of term vs. whole life insurance for seniors also depends on your health and age. For whole life insurance, final expense is a great option for people over the age of 50 to help cover funeral costs and other end-of-life bills. Final expense insurance can also be easier to qualify for than term, since the coverage amounts are smaller. If you want a guaranteed payout no matter how long you live, whole life is the way to go for this age bracket.
So, which is better: term or whole life insurance? Are you and your family trying to weigh the pros and cons of each? Here’s what to consider when it comes to selecting the best policy.
Term life insurance is likely the best choice if you:
For most people, term life insurance is the best way to go because it’s affordable, easy to understand, and flexible. In some cases, though, whole life insurance could be a better fit when considering the term vs. whole life insurance pros and cons. Whole life insurance, like universal life insurance, is a type of permanent policy. Consider whole life if you:
Have lifelong financial needs. In some cases, you may need permanent financial protection, like if you’re providing for a child with disabilities or want to leave a legacy behind for your family. As long as you continue to pay your premiums, whole life insurance will last your entire life, which ensures a payout for your family when you die.
Want an extra source of cash, and you don’t mind paying extra for it. Whole life builds cash value over time, which you can borrow from or use as collateral for a loan. Additionally, some people want this as an extra source of savings. That’s part of the reason both whole life and universal life cost more than term life, and you’ll want to consider whether the extra cash is worth the extra monthly cost. If you’re not currently maxing out 401(k) or other savings vehicles, you’ll likely want to start there first.
At eFinancial, our goal is to make buying term or whole life insurance as easy, convenient, and affordable as possible. We offer a variety of term and whole life insurance products from top-rated insurance companies, and our agents are here to walk you through your options.
We’re committed to getting to know you and your situation, so we can support you during every step of the process and get you covered as quickly as possible. We look forward to helping you.
