Term Vs. Whole Life Insurance: Pros and cons

Anyone looking to purchase a life insurance policy will likely consider term vs. whole life insurance. Regardless of which one you choose, there will be a death benefit payout if you were to suddenly pass away. This is essential if you have dependents, as your beneficiaries will be left with some cash for their financial needs.

Both term life insurance policies and whole life insurance policies protect your loved ones. In most cases, a term life policy is the way to go. However, you’ll want to understand both types of policies so you can make the best decision for you and your family.

What is life insurance?

Life insurance is a type of insurance policy that pays a lump sum if you were to suddenly pass away. How much your beneficiaries will get depends on the policy you’ve purchased. Generally speaking, the more you pay in premiums, the higher the payout.

If you were to pass, your life insurance company would pay your beneficiary directly. This amount is tax-free and can be used for anything, such as funeral expenses, paying down the mortgage balance, and the cost of raising kids on a single income.

What is term life insurance?

As the name implies, term policies cover you for a fixed term, such as 10, 20, or 30 years. As a term life policyholder, your monthly premium payments never change. The catch is once your term insurance is up, you’d have to reapply for a new policy, which could result in higher premiums. That’s why many people opt for a long term, such as a 20-year term or 30-year term.

Some term length life insurance policies require a medical exam but not all of them. That said, a no medical life insurance policy is typically expensive and provides only limited coverage. If you’re young and healthy, term coverage is likely the best type of life insurance for you.

Term life insurance may also be convertible to whole life insurance.

What is whole life insurance?

As you’ve likely guessed, whole life policies cover you for your entire life. You’re guaranteed some money regardless of when you pass away. As you can imagine, this type of policy can be quite expensive, and you must keep paying the premiums every year if you want to keep your coverage.

Whole life insurance and other types of permanent life insurance are often sold as an investment. There can be an included cash value component which allows you to access and invest some of your funds. There are also some tax benefits and dividends you can take advantage of during your lifetime. While there’s no denying that permanent policies can be appealing since they give you lifelong coverage, it’s not a product that’s great for most people. 

Term life vs. whole life insurance

In most cases, term life insurance is the best choice. That’s because most people don’t need coverage for their entire lifetime. Let’s say you have a family and a mortgage. After 20 to 30 years, your mortgage will likely be paid off, and your kids will be financially independent. Since there will be no other major financial obligations, life insurance is less of a priority.

When it comes to lifetime coverage, whole life and universal life insurance policies are only good in specific situations. For example, someone that wants withdrawal access to the premiums paid throughout the duration of their policy. It may also benefit some individuals who want the flexibility to adjust their death benefits over the years.

Who needs term life insurance?

Term life insurance is ideal for people in the following situations:

• People who want affordable insurance
• Those looking for insurance that covers a set period of time
• Anyone young and healthy
• People that have dependents  

Who needs whole life insurance?

Although not as popular, a permanent life policy can be a good fit for the following:

• Those who want lifelong coverage
• Anyone that wants an investment component included
• People who may want to borrow from their life insurance coverage

Pros and Cons of term and whole life insurance

If you’re still debating between term life vs. whole life insurance, it might be better to consider the pros and cons of each to come to a decision.

Pros of term life insurance

• Inexpensive if you’re young and healthy
• Easy to understand
• You can choose the length of the term

Cons of term life insurance

• Coverage is temporary
• A renewable term will cost you more

Pos of whole life insurance

• Lifetime coverage
• Your monthly/yearly fees never go up
• The investment component grows on a tax-deferred basis

Cons of whole life insurance

• Very expensive
• Most people don’t need a permanent policy

Cost of life insurance 

The cost of life insurance will differ depending on the following:

• Your age
• Your health
• Gender
• Coverage amount wanted
• Type of policy

To give you a general idea, a 30-year-old female in healthy condition that wants $500,000 in life insurance coverage would pay about $23 a month for a 10-year term life policy or $207 a month for a whole life policy. 

The cost comparison is quite clear. Term life policies are much more affordable. Regardless of which policy you go with, it’s a good idea to shop around for different quotes before you commit. 

How to get life insurance 

Once you’re ready to purchase life insurance, the steps are pretty straightforward.

• You’ll fill out an application with your personal information
• Choose the amount of coverage you want
• Answer some medical questions
• Go through the underwriting process (where life insurance companies verify your info and health)
• You receive a quote
• Sign the documents and make your payment
• Your policy is now active

When debating term vs. whole life insurance, most people will go with term. To purchase life insurance, you can go through an insurance broker. These people will shop around for you. This should save you time and money. In addition, they’ll be able to ask you questions so they can figure out exactly what kind of policy you need.

Another way to get life insurance is to purchase it online. Many companies allow you to purchase a new life insurance policy immediately. This is a quick and convenient way to get a quote. You can then decide if you want to go through with getting insurance after reading the policy details.