Whole Life vs. Term Life Insurance

When you discuss whole life insurance versus term life, you are really taking on a two-tiered discussion. The first tier is to determine what the primary differences are between the two. The next level to the discussion is which form of insurance is right for you. As with any other financial advice, the right answer depends on your situation and your needs.

Insurance Value

One of the primary differences between whole and term life insurance is policy value. A term life insurance only has value to the beneficiaries and only when the insured passes away. The value, at that point, would be the death benefit of the policy. Other than that, a term life policy has no value.

A whole life policy has a death benefit and an accrued investment portion as well. The total value of a whole life policy is the death benefit plus the cash value of the investment side. The investment portion of a whole life policy allows some people to use the policy as an estate protection vehicle and as a retirement account. The insured can access the cash value while they are still alive, while the cash value and the death benefit are paid to the beneficiary once the insured has passed on.

Coverage Terms

A term life policy is limited in how long it is in effect. Once the term policy has expired, there can no longer be any claims made against it. If you took out a 20-year term life policy to protect your mortgage and you pass away after 21 years, then those 20 years of premiums cannot be recovered.

A whole life policy is in effect for as long as the premiums are paid. You can also arrange to have the premiums taken from the cash value after a certain period of time. A whole life policy does not have a set coverage term.

Functionality

When it comes to functionality, a whole life policy significantly eclipses a term life policy. The only functional element to a term life policy is to pay a death benefit to a beneficiary upon the death of the insured. There is no other functionality to a term policy.

A whole life policy offers an investment vehicle that can be accessed by the insured and a death benefit for the beneficiary. But the insured is also able to take out loans against the death benefit while the insured is still alive. The death benefit is reduced by the amount of the loan, which could leave the beneficiary less than the death benefit that was expected.

Thanks to the investment and loan features of a whole life policy, it is able to take on several functions. A whole life policy can offer cash for significant purchases during the life of the insured, it can be a place where the insured invests their liquid assets and protects their estate, it can be used as an enhancement to a retirement fund, and it can become an extremely valuable commodity upon the death of the insured.

Which One Is Right For You?

When considering term versus whole life, you have to take your situation into account. If you are looking for a solid financial vehicle that will allow you to insure that your financial assets make it into the hands of your next of kin, then a whole life policy is the ideal vehicle for you. A whole life policy can also be used by your financial adviser or attorney as an estate planning tool.

A term life policy is ideal for protecting long-term investments. For example, you can get a 30-year term life policy to go with your 30-year mortgage and preserve the family home, even if something were to happen to you. Other long-term investments that can be protected by a term life policy include retirement planning, saving for a child's education, and business protection.

Before you invest in whole or term life insurance, it is critical that you understand their differences and know how to apply them to your personal needs. Tags: featured · term life insurance · whole life insurance

Whole Life vs. Term Life Insurance