When buying life insurance the big question comes up of whether you want term or whole. That is a hard question if you don’t know the differences, so here is a quick simplified list. Term life insurance is used when people only need coverage for a specific time period or when they can’t afford to purchase permanent life insurance. Term insurance has a guaranteed death benefit, no cash value, and the premium increases at intervals. Another function of term insurance is that it can be supplemental to permanent insurance in times of higher need.
Whole life insurance is designed to provide life insurance coverage plus other living benefits. It normally acts as the best long-term solution. Your policy cannot be cancelled unless you fail to pay a premium. Premiums start higher but do not increase throughout the life of the policy. The chart below helps to summarize the differences between term and whole life insurance.
Term |
Whole |
|---|---|
| Guaranteed term death benefit. | Guaranteed permanent death benefit. |
| Generally federal income-tax free death benefit. | Generally federal income-tax free death benefit. |
| Premiums are usually guaranteed only for the initial term. | Premiums are guaranteed to stay level for the life of the policy. |
| Potential additional growth of policy value through dividends.1 | |
| Inexpensive initially, with costs increasing at each renewal point. | Premiums are higher initially, but remain level, regardless of age, for life of policy. |
| You pay for pure death benefit protection for certain period, without cash value accumulation. | Offers tax-deferred cash value growth which is accessible through policy loans or partial surrenders.2 |
| Term conversion privileges are available with most policies, enabling you to convert to a permanent policy that builds cash value, with no additional medical underwriting.3 |
“Compare and Contrast: Term and Whole Life Insurance.” Compare Term Life and Whole Life. N.p., n.d. Web. 29 June 2015.
