Whole Life V. Term Life

When it comes to life insurance, there seems to be a lot of confusion as to what kind of policy makes the most sense. Media personalities say term insurance is the more cost-effective option, life insurance agents and brokers say whole life is the better option, but who’s right? To answer that question, let’s first discuss the basics of both.

What Is Term Life Insurance?

Term life insurance is insurance coverage that you can buy to protect your family for a specified amount of time. The policy will terminate at the end of the time frame you choose when you initially bought the policy. Term life insurance typically has three policy length options 10, 20, and 30 years.

Pros

Term life is a great value that allows you to get as much insurance coverage as you need at a price that you can comfortably afford.

Cons

Term policies end after a specific amount of time, potentially leaving you without insurance coverage.

What Is Whole Life Insurance?

Whole life insurance can last you a lifetime. You don’t have to worry about it ending because as long as you continue to pay the premium, it will always be there giving you the life insurance protection that you expect. Furthermore, whole life insurance policies have a saving account attached to it that can accumulate cash value with fixed interest, or variable interest that is based on financial market performance.

Pros

Whole life insurance lasts the rest of your life. It has a built-in saving account that accumulates value that may increase the total face amount of the policy. 

Cons

Large amounts of whole life insurance can be expensive.

The Bottom Line

Term life insurance is great because it gives you the financial flexibility to cover everything you need to while still being able to afford lunch every day. But everyone needs a little whole life insurance not because of the cash value, but because it stays with you for the rest of your life. You never know what kind of health you will be in at the end of that term policy, and so you never know if you will have the option to pick up an affordable whole life policy in your 60’s,70’s, even 80’s. So why not get one while you still can. As for the cash value, it’s a great feature, and in some cases, the cash value can grow to the point where the policy will pay for itself, so no payments will be needed for it to stay in force. And again it will always be there protecting you and your family.

What Should You Do

Both. Combine Whole life and term life to address the immediate and long-term insurance needs. If you are in your 30’s or early 40’s, consider blending term and whole life, put the lions share of the risk like the mortgage and college tuition for the kids in a term policy. Mortgages get paid off eventually, and kids grow up so by the time the term policy ends, you probably won’t need that much coverage anymore. Also pick up a whole life policy with a small face amount, something like $25,000-$50,000 to last you long after the term insurance policy ends.

If You’re Over 45 Years Old

If you are over 45 years old, it is in your best interest to get a whole life insurance policy. Sometimes a person over 45 might benefit from having both term and whole life, it depends on the situation, but a whole life policy should be a part of your plan because it will give you the protection you and your family deserve for the rest of your life. If you can only afford one, then it would help to consider the reason for the policy, who the beneficiaries are, and what you want the proceeds to do. Speak to a licensed agent and tell them your goals so they can help you to make the best decision for your budget.

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