Doug Jones

Term Life Versus Whole Life

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Term Life Insurance

Life insurance is essential coverage for your beneficiaries in the event of your untimely passing. When you consider your life insurance options, you can choose from two general classes: temporary insurance or more commonly referred to as term,  and permanent  insurance which would include whole life and universal life insurance. Each has its benefits, and you can also pair the two if needed.

Term life insurance is generally referred to as temporary insurance, meaning that it provides coverage for only a specified period of time. This type of insurance is typically issued in five-year intervals and is generally available up to 30 years. As a non-permanent type of life insurance, low cost term life insurance offers the following benefits:

  • More affordable premiums than typical permanent life insurance premiums
  • Additional coverage during specified periods in your life when extra life insurance might be needed
  • Supplemental life insurance with permanent life insurance

Though affordable, term life insurance might not always be the most suitable coverage for you. Keep in mind that it:

  • Does not accumulate cash value, meaning that it is “pure” insurance. Once the term date has been reached and you are still alive, you cannot cash in the policy.
  • Does not guarantee death benefit payout if you pass away after the policy expires.
  • Can increase premiums if you choose to continue coverage after the policy’s expiration date has been reached.

Whole Life Insurance

In contrast to term life insurance, whole life insurance is a type of permanent life insurance that provides coverage for a person’s entire life. This type of insurance has been available for many years. Whole life insurance provides the following benefits:

  • Insurance coverage for a person’s entire life
  • Fixed premium prices
  • Tax-deferred cash accumulation
  • Guaranteed death benefit payout
  • Possible dividends that can increase the value of the policy

Some considerations that you might want to think about include:

  • Even though they do not increase, premiums are generally more expensive for whole life policies than for term life insurance policies.
  • Withdrawals or loans taken from the whole life insurance policy can diminish the amount of the death benefit.
  • Dividends are not guaranteed.

Premiums for Term Life Insurance and Whole Life Insurance

The longer you wait to purchase any type of life insurance, the more likely you are to pay higher premiums. The reason is that as time goes on, the more likely you are to die which increases the risk. In addition to age, other factors that affect premium rates and insurability include gender, health and tobacco use.