When you start shopping for life insurance, you may be surprised to learn that there are two different types. One is called term and the other is called whole. The first one is designed for specific situations, whereas the second is more popular and universally beneficial.
What’s the difference between term and whole life insurance? Is term life better than whole life? Which one should you buy? Those are all questions we answer below.
What Is Term Life Insurance?
Think of term life insurance as temporary life insurance. This type of policy only covers a certain span of time during your life. Once it reaches the end of the span, or “term,” it expires.
The only way your term life insurance is useful is if you die before the expiration date. In the case of the latter, the money would go to your heirs or the executor of your estate or whomever you designated to cover your death expenses. But if you don’t die, you basically paid those monthly premiums for nothing. It’s all gone after the policy expires.
You also can’t take out a loan against it the way you can with a permanent policy, for obvious reasons. After all, it’s a temporary policy. Unless you die soon, that money will no longer be available after the expiration date.
What Is Whole Life Insurance?
Just as we told you to think of term life insurance as temporary, we ask you to think of whole life insurance as “permanent.” This is a policy that you will, ideally, keep for the rest of your life. There is no expiration date on it, and it is payable as soon as you die.
Since whole life insurance is permanent, you are allowed to take out a loan against it. You can also invest part of your premium to increase the policy’s cash value.
What Are The Pros And Cons Of Term Life Vs Whole Life?
Depending on your current financial situation, as well as your health, you may find term life or whole life insurance more attractive. To make it easier for you to decide, we made the following pros and cons list.
Pros And Cons Of Term Life Insurance
- Premiums are cheaper
- Covers your death expenses if you expect to die before the policy’s expiration date
- Expires after a set amount of time, after which time you’re no longer covered
- If it expires before you die, you don’t get the money you spent on premiums back
- You can’t take out a loan against it
Pros And Cons Of Whole Life Insurance
- Coverage lasts your whole life and never expires
- You can take out a loan against it
- You can invest a portion of your premium to meet your financial goals
- Premiums are more expensive
How Much Will Term Life Vs Whole Life Insurance Cost Me?
If cost is a big factor in your choice between term life vs whole life insurance, then you should know that term life costs less than whole life. But the reason for that is it’s temporary. A whole life insurance policy is more expensive, but you’re allowed to invest part of your premium as well as take a loan out against it. So, even though it’s more expensive, the benefits can outweigh the cost.
What To Consider Before You Buy Term Life Vs Whole Life
Wondering how to choose between term life vs whole life insurance? Here are some things to consider.
First, think about your longevity. Are you expecting to live for a long time? Of course, you hope that you will! But some people, such as those with a terminal illness or who put themselves in dangerous situations for their careers (like firefighters or police officers), may want to prepare for their death more than others. If you expect to die within a certain span of time, then a term policy may make more sense financially because of the lower premiums.
Another thing you should consider are your dependents. Do you want to leave them money to maintain their livelihood and lifestyle only if they’re under 18 years old? Or do you want to cut them off as soon as they reach legal adulthood? If this is the case, then you could take out a term life insurance policy that expires right after they turn 18.
If, on the other hand, you want to continue to provide for them or you want to put them in charge of paying your death expenses, then a whole life insurance that covers your lifespan is the smarter course to take.
3. Cost Vs Benefits
Finally, consider cost vs benefits. Whole life costs more, but the benefits it provides outweigh the pros of term life. The main draw for term life is that it’s temporary and it’s cheap. But, unless you expect to die soon, you may be wasting your money with a term life policy because after it expires, it’s useless.
Where Can I Compare Life Insurance Rates?
If your decision hinges on cost, you’ve come to the right place! G&G Independent Insurance lets you compare rates for term life as well as whole life insurance. From there, you can simply pick the one you can afford best.
To get a free quote, click here, or call us today.