What is the difference between term and whole life insurance?

Wondering if there is any difference between term and whole life insurance?

Yes, there is – even a wide one. But first, you need to know why this whole buzzes about life insurance is trending and why you need one. Death is an inevitable circumstance and, as such you need to plan for the inevitable. You need to protect your family even after your death. And one of the ways to do this is by purchasing life insurance. Life insurance offers lots of benefits to your beneficiaries after your death. Your beneficiaries can use it to pay for funeral expenses, education bills, mortgage, and medical bills. As you’re about to choose an insurance company, you need to review whole life insurance quotes. Here you’ll notice one common thing – top players in the industry offer permanent and term life insurance products. This is so as they both have their own merits. Understanding the difference between term and whole life insurance policies is the only way to get it right. Hence in this article, you’ll figure out the difference between the two so you can make the best choice.

What Is Term Life Insurance?

There are many definitions of term life insurance online but I find this Wikipedia’s definition most interesting. The definition goes thus: “Term life insurance or term assurance is life insurance that provides coverage at a fixed rate of payments for a limited time, the relevant term”. From this definition, there are some salient points to note. The term policy will only last for a specific time. This could be 5, 10, 15, or more years. In other words, it wouldn’t last beyond the existing life of the client or agreed term of the contract. So if you purchase this type of policy and the period expires, coverage at the previous rate of premiums ceases. And you only have one option: you either purchase further coverage with different payments or forgo coverage. While term life insurance lasts for a limited time, it has its own merits. Let’s see what some of these advantages of term life insurance are.

Pros of Term Life Insurance

• Term life insurance rates are less expensive compared to whole life insurance. This is so as the former policy only offers protection for a specific time.
• It’s the best insurance policy for people with young families. Since young families always face lots of financial responsibilities such as caring for the children, saving for college, etc. Term life insurance will save costs on the policy.
• It can be contrasted to permanent life insurance such as whole life, variable universal life, and universal life. This offers fixed premiums for the lifetime of the covered individual unless you allow the policy to lapse.
• It’s simple to understand.
• The death benefit proceeds aren’t subject to federal income taxes.
• It can be used as collateral for loans.

Cons of Term Life Insurance

• The policy doesn’t accumulate cash value.
• It tends to limit what you can buy in coverage as you age. The amount you’re able to purchase when you’re old may be lesser to when you’re young.
• There is a high possibility of premium going up upon taking a new term.
• It’s very difficult to qualify in a situation of serious health issues.

What’s Term Life Insurance Rate Like?

There is no one-size-fits-all for determining term life insurance rate or any type of insurance policy. However, some factors help in determining insurance premiums. To have an idea of what your term life insurance rate will be, here are some factors to consider:

• Gender
• Age
• Health
• Whether you smoke or not
• Life expectancy

For example, your health status is one of the factors that can help you determine your premiums. That’s the healthier you are, the lower your premiums. So in classifying insured people based on health status providers use terms like:

• Super Preferred
• Preferred
• Standard

Term Life Insurance Calculator

It’s always good to have a prior idea of what your life insurance rate will be before approaching a provider. That way, you’re able to determine the financial implication of the policy in advance. While there are many insurance calculators you can use, you can give this term life insurance calculator a try.

Term Life Insurance Quotes

Finding affordable term life insurance quotes isn’t a daunting task as you think. But what’s most important is to understand the trick to finding cheap life insurance. There are especially some things you need to look at in your lifestyle. If you’re serious about getting cheap life insurance quotes, here are some tips to apply:

• Lose weight
• Give up smoking
• Drive safely
• Avoid risky hobbies or activities like sky diving
• Prevent bankruptcy at all cost

What Is Whole Life Insurance?

Whole life insurance is a type of permanent life insurance where the coverage lasts throughout the client’s entire life. By this, it means the policy provides coverage for the entire life of the insured provided he pays the premiums. One of the good things about this insurance policy is that it accumulates cash value. That way, the cash value keeps accumulating in the policy as long as you don’t default the premiums. Additionally, you can borrow against the cash value if you need to meet an emergency bill. Or you rather use the cash value to settle the policy’s premiums. You can also leave it for your beneficiaries to receive after your death. However, if you decide to withdraw the policy cash value as a policy loan, then you need to pay back. But where you have an unpaid policy loan, the unpaid amount will be deducted from the death benefit. While some insurance companies allow for a combination of term and whole life insurance into one policy, others don’t. Some insurance companies offer the privilege to convert a term policy into a whole life policy. That way, you can lock in your current premium rate. This means your premium rate will remain the same for as long as the policy is valid. That being said, what are the merits and demerits of whole life insurance? Here are the pros and cons of whole life insurance:

Pros of Whole Life Insurance

• Whole life insurance policy accumulates cash value.
• You can withdraw the cash value as a policy loan to pay emergency bills.
• It’s operated on a fixed premium.

Cons of Whole Insurance

• It’s expensive when compared to the term insurance.
• The death benefit is relatively smaller.

Whole Life Insurance Calculator

Asking how much whole life insurance you need? Then you need a life insurance calculator to get your answer. The good thing about the insurance calculator is that it gives you an idea of the insurance quote. And when you know this upfront you can plan your savings for the insurance. Although there are many insurance calculators out there you can experiment with this one. (Pls, David you can replace this with your own link if you have one)

Is Whole Life Insurance Worth it?

Whole life insurance is worth it – my personal opinion though. But the question you might want to also ask is when is worth it. Depending on your needs and conditions, whole life insurance pays off for many reasons. For example, it’s worth the investment if you’re looking for permanent coverage. But it may not if you’re looking for a lifelong coverage. So I’ll suggest you first consider what exactly your needs and condition are before making a choice.

Term and Whole Life Insurance Compared

Comparing term life insurance and whole life insurance isn’t something you can easily conclude on. Because what’s good to one person might appear bad to another. For example, young people will find term life insurance most beneficial as it’s relatively inexpensive. It helps you to protect your loved ones from financial responsibilities like paying funeral expenses, medical, and college bills. Unlike the term life insurance, the whole life insurance is relatively expensive. However, whole life insurance isn’t without its own merits. It offers a fixed premium and cash value accumulation benefit. So looking at both sides of the coins, here are some similarities and dissimilarities in both:

Coverage

Although there’s a difference between term and whole life insurance in coverage, both pay guaranteed death benefit when you die. Term life insurance offers coverage for only a specific period of time. But whole life insurance covers the entire life of the insured person.

Qualification

As with the whole life insurance, you might not need to take medical exams to qualify for the policy. But to qualify for term life insurance policy you’re required to take a medical exam. This is so as the coverage amounts for the term life insurance are very high.

Premiums

Many young people prefer term life insurance policy over the whole life insurance. This is because they see it as the type of insurance policy that offers inexpensive premiums. Although this is true the initially inexpensive premiums is only for when you’re just getting started. Once you’re in, the premiums increase over time. Sometimes you’ll notice the increase when you try to get a new policy. At another time, the increase will come at regular intervals during the coverage period of the policy. As for the whole life insurance, the premiums are expensive at the initial stage of the policy. But once you’re in, the premium is locked in at affordable rate for the life of the policy. You should try to lock in affordable premiums early. Because doing this will put you at a big advantage as you grow older.

Cash Value

One of the differences between the term and whole life insurance is in the area of cash value accumulation. While the latter builds up cash value the former doesn’t. In fact, one of the comparative advantages of whole life insurance over term insurance is the cash value. In that, you can withdraw the cash value as a policy loan.  You can also decide to leave it and redeem it as a lump sum at any time.

Dividends

Although this isn’t the case with all providers some insurance companies pay dividends to their clients. This is only applicable when you purchase whole life insurance. As for the term life insurance, there are no annual dividends for you. So if you happen to purchase your policy from a provider that offers annual dividends then you’re in luck.

Term or Whole Life Insurance, What’s Best for You?

So you’re ready to take the plunge but not sure why do you need term or whole life insurance. Don’t panic as I have your back. Before you decide which of the two insurance policies will be best for you there are questions to answer. Breaking it down for you, here are some key questions to ask yourself:

• Why do you need life insurance?
• What type of coverage do you need?
• Can you upgrade your current policy? If yes, how?
• If you don’t die, what happens to your policy?
• How much does the policy cost (premium amount)?
• What’s the process for filing a claim?

Answering all these questions and some other questions are very important before getting started. Because you don’t want to get into it and later find out it’s not the right policy for your situation. And most importantly, certain policies are suitable for certain needs and conditions. For example, a term policy will suit for protecting your loved ones from a loss of income. But it might not be the best for you if you’re trying to cover funeral expenses. In that case, your best choice is to go for final expense insurance – another type of whole life insurance policy. Overall, your situations and needs should take the lead when determining the type of insurance policy to choose.

Wrapping Up

While all the tips above are enough for you to get it right, I suggest you keep this article handy. Read it over and over again. Before you take a leap try and ask all the above questions. But don’t forget to also consider the difference between term and whole life insurance. Finally, with all the tips above taken seriously, you can rest assured you wouldn’t go wrong. Cheers!!!