Term Life Insurance Vs Whole Life

February 2, 2021

Term Life Insurance vs Whole Life: What’s the difference?

For over 57% of Americans, life insurance is a fundamental component of securing their financial future. But, when it comes to selecting a specific insurance plan, that’s where many hit a brick wall. Insurance can be tough to grasp, especially for those who don’t know the difference between term life insurance vs whole life.

People have no clue what the plans have to offer, let alone choose between the two. But one thing is certain, there is no better time to select an insurance plan than right now. It protects families and creates a long-term financial strategy. These benefits can help families pay off loans, debts, mortgages, or various expenses even in the event of a loss.

This is a detailed overview of the term and whole life insurance plan. Here, people will learn about the key differences and benefits of the two plans. Including which one would make for a better choice to tap into their funds.

Term Life Insurance vs Whole Life: How to Distinguish the Two?

term life insurance vs whole life

About 60% of adults in the U.S. have some kind of life insurance, statistics show. As for selecting a life insurance plan, it all boils down to two choices - term life insurance vs whole life. The first one is meant to cover a shorter period, so it’s simpler and more affordable. The second one is designed to create additional retirement support and lifelong coverage.

So, when the user passes away, their family will be able to cover all the necessary expenses. However, to choose either of these types of life insurance, people need to know how to distinguish them. That way, they can make the most of their benefits.

Key Takeaways:

 

Term Life

Whole Life

Overview

Covers temporary needs with opportunities that help users organize their future financial strategy.

Offers lifetime protection and constant progress. While users obtain a certain cash value at the same time.

Coverage duration

Limited duration that typically lasts for 10-20 years.

Lifetime coverage only if all the premiums remain paid.

How to pay

Users are paying the premiums based on the length of coverage. After the coverage ends, so do the premiums. When the term period ends, the premiums tend to increase drastically. However, with multiple policies, selecting a locked set seems like the most affordable alternative.

Users get to choose a payment option – annually, quarterly, or monthly. These premiums do not increase.

Progress and cash value

No cash value or progress.

Provides a cash value that users can obtain when necessary. Also, it could increase through dividends. This creates an excellent strategy for maximizing peoples’ savings.

Plan benefits

Tax-free benefits that can be sent to beneficiaries after death.

Tax-free benefits that can be sent to beneficiaries after death.

Term Life Insurance

Also known as the “pure life insurance” plan, term life is meant to protect the user’s dependents, in case the user dies prematurely. If the term plan is active, and the user dies within that period, their beneficiaries will obtain a payout.

These terms last anywhere from 10, 20 to 30 years. During that term, the payout, which is basically a death benefit, remains the same. The ideal term life policy should be 10 to 12 times of the user’s yearly income.

That way, the family will still receive a payout that will cover all the expenses, upkeep costs, and more. Most people choose a term life between 20 to 30 years. Since anything can happen in this timeframe, the insurance provides stable coverage.

The monthly prices for a term life policy will vary from person to person. For example, a typical male adult at the age of 30 who purchases a 20-year plan, will get half a million dollars in death benefit. They would pay around $29 a month. A woman, however, of the same age, can get the exact policy at around $23. Since their lifespan tends to be longer, the price for a female user is often different.

Of course, plenty of other factors can alter these prices. Longer coverage and a bigger death benefit will increase the premiums. Furthermore, health issues and complications may increase rates. So, when the policy expires, users may end up spending all that money just to obtain some level of reassurance.

Pros

  • Comes at a much cheaper cost than a whole life plan.
  • Because of the simple policies, it’s very easy to get access.
  • Ideal for those who can’t afford a permanent insurance plan.
  • Best for users who need to replace their income over a specific period.

Cons

  • Temporary coverage.
  • Users can’t rely on the plan to build cash value.

Whole Life Insurance

This plan ensures lifelong coverage. The premiums are divided into two segments. One part builds the user’s cash value and the other ends up in the insurance component. Typically referred to as the “policy’s cash value”, the cash value with whole life constantly increases. In other words, users are not paying taxes on the gains, but they keep accumulating.

The real benefit of whole life is in the “front-loading” policy. When a user gets a premium early in their life, the amount of the premium gets higher than the actual cost of the insurance. The older they get, the cost decreases. Therefore, it is a more worthwhile investment when taken early on.

Another benefit is the monthly rates. The majority of whole life plans are “level premium”. This means that whenever you have to pay a monthly rate, you pay the exact same amount every month. It doesn’t increase as the term policies do.

Pros

  • A perfect long-term strategy for users who want to lock their premiums for life.
  • Designed for securing estate taxes and inheritance.
  • Can fund the needs for a special-needs child.
  • Will compensate for more costly expenses and provide beneficiaries with a stable inheritance.

Cons

  • Very expensive in the long run.
  • It’s crucial not to let the policy lapse, or the user might have to surrender charges.
  • Taking out loans will decrease the user’s death benefit.

What’s the Best Pick?

term or whole life insurance

Both term and whole life have something unique to offer. When weighing the pros and cons of term life insurance vs whole life, it’s important to think about two things: how much you can afford and what kind of coverage you need.

Selecting the best pick highly depends on the user’s current financial state. For instance, if they can’t afford a whole life plan, then it’s better to purchase basic term protection than have nothing at all. Those who are looking to start a family or build their career will need a steady cash flow and something that will build their cash value. In cases such as these, it is better to go with the whole life plan.

Whatever you decide, you can use our services at lifeplans.com to apply for quotes for various life insurance carriers. You can use our website to compare the prices and find a plan that will best suit your needs. When you compare with us, you will save time on searches and get a price that will fit your budget. Besides, comparing is the key to getting deals and with insurance quotes, you will get plenty of opportunities for a hefty discount from various life insurance companies.

Conclusion

The fact is that no one can predict the future, but they can prepare for tomorrow. Life can be overwhelming, especially when something unplanned happens. That’s where life insurance can come in handy. No matter what happens, people will secure their financial future. This is the kind of stability and security everyone needs.