What's the difference between term life and whole life insurance?
The difference between term life and whole life insurance mostly depends on the amount of time that the policy will cover, yet those aren’t the only differences you need to keep in mind to find the best price. You also have to decide whether or not you want to use your life insurance policy as an investment vehicle, so here’s a quick explanation of each type.
Term life insurance
Essentially, term life insurance is a policy that’s only valid for a specific period of time, most often in increments of five to 10 years. But it is possible to get term life policies with different terms – sometimes shorter, sometimes longer. While it’s not always a hard and fast rule, term life insurance usually doesn’t cost as much as whole life insurance, and term-based policies come with simple, easy-to-understand benefits and exclusions.
That’s not to say that whole life insurance is too complex, but rather it’s pointing out that term life insurance is a slimmer version of what we typically think life insurance includes. Making matters more complicated, the different types of term life insurance come with varying costs and death benefits.
Does all term life insurance payout the same benefits?
Another key difference to keep in mind you’re comparing term life insurance is the benefits level, meaning that the policy may or may not pay out the same amount of money depending on when you pass away. If you happen to pass away near the beginning of the policy, your beneficiaries will receive the most compensation; however, specific term life insurance policies pay less the longer you have the insurance.
That’s why you need to be sure that you understand what’s included in a term life policy because you don’t want to reach the end of the policy, assuming that you’ll receive the same benefits. Usually, term life insurance comes with decreasing levels of benefits, so the catch is that you’ll need to pay more for a level-term life policy than a standard, decreasing benefits policy
Whole life insurance
On the other hand, whole life insurance is a policy that extends throughout your entire life from the day that you activate the policy to the day that you pass away. Sometimes, you’ll see this type of policy referred to as universal life insurance, so don’t get confused when you see interchangeable terminology. It all means the same thing at the end of the day when it comes to whole life insurance.
Nevertheless, the key difference between whole life insurance and term life insurance is that a whole life policy accrues interest and subsequent equity over time; term policies have no such feature, and you can’t “cash out” the policy as needed either. The good news is that some life carriers allow you to convert term life into whole life if you meet certain conditions, which may be the better option if you’re not sure whether or not you want to pay for whole life insurance upfront.
Insurance providers use all of this information to determine how risky it will be able to cover you. If they believe you're at a lower risk, you'll get the most favorable terms and death benefits; if they think you're at high risk, you'll inevitably have to pay more for coverage because it's more likely that you'll need to have a policy. It's this balance of risk versus reward that will decide if you qualify or not.
Notwithstanding those essentials, the most important thing to remember when you want to qualify for any life insurance is that you have to tell the truth about your medical status. Suppose you choose to lie and blatantly deceive during the qualification process. In that case, there's a significant risk that your beneficiaries will not receive the death benefit because you decided to hide your medical history.
For instance, if you have a pre-existing heart condition that you didn’t disclose, your loved ones may pay the price for your deception if you pass away from a heart attack. Health screenings can only reveal so much since the exams aren’t very intrusive and mainly include basic lab tests.
After all, your current health status and how healthy you will be five or ten years from now matters most when buying life insurance, even a more straightforward policy like term life insurance.
With LifePlans.com, all of the most vital information about each policy displays side-by-side to make it easier to see which policies would work and which wouldn’t be a good fit. Not only is it a great way to save time, but it's also a way to make sure your loved ones receive the proper level of benefits after you pass away.