Term vs. Whole Life Insurance: Which Is Better?
When considering life insurance, most people find it challenging to choose one of the most popular types, Term Life Insurance and Whole Life Insurance.
Term vs. Whole Life Insurance: Which Is Better? Before choosing the right one, you must have a decent understanding of both insurance categories. Otherwise, your selection will go wrong.
In this article, we discuss everything related to both Term Insurance and Whole Life Insurance. These include definitions, advantages, disadvantages, costs, policies, and so on.
Hopefully, after reading the article, you can make your decision more easily. So, stay tuned, and keep reading.
What Is Term Life Insurance?
Let's start with the definition of Term Life Insurance. What does it mean? Well, it is simple to understand. It will cover you for a certain period, such as 10, 20, or 30 years. If you die during the term, they will hand over the amount to your beneficiary.
Let me clear with an example, suppose you bought a $50000 policy for a 10 years term, and you die within the period, then your beneficiary would get the $50000. It's simple.
On the other hand, if you live through the term and your coverage finishes, your beneficiary doesn't receive any money. It is the main difference between the Term vs. Whole Life Insurance. This Term Life policy has no cash value until you die.
What is Whole Life Insurance?
Whole Life Insurance is permanent life insurance which is more expensive than Term Life. This is because it is designed to last a lifetime, and it doesn't matter whether you die; you'll be paid out.
The Whole Life insurance has a cash value, and you'll be sent a certain amount in your account. With the passage of time, the amount grows. When you see enough cash value, you can borrow against the account or quit the policy for cash.
Whole Life insurance is a bit more complicated than Term Insurance, and the way it works is more straightforward than other types of life insurance. As long as you live, the premium will remain the same, and the cash value account will grow at a fixed rate. That's why whole life insurance for adults is the right choice.
In addition, the death value is guaranteed in this life insurance until you take out a large amount of cash value loans.
The Benefit of Term Life Insurance
What benefits do you get if you go for Term Life Insurance? This is the segment where I have given the list of benefits:
It is comparatively more affordable than other life insurances, including Whole Life.
The premium will remain the same during the level term period.
Death benefit amount is fixed.
If you want to cover your income-earning years, it can be a good choice.
When it is about covering particular financial concerns that have a time limit like mortgage, it is obviously a wise decision.
It is also possible to change it into a permanent policy.
The Benefits of Whole Life Insurance
Whole Life insurance has many benefits you can attain if you go for the insurance. Look at the list below to see its benefits at a glance:
It covers the rest of your life; even if you pass away, your beneficiary will receive a death benefit.
The Whole Life insurance has cash value. When the adequate cash value accrues, it becomes available to you through loans or withdrawals.
The cash value policy is an extra asset to your family.
Several policies are available with a certain payment period where the premium is fully paid in a particular number of years.
You may profit from the insurer if you go for the insurance. Whether you'll get dividends actually depends on the company's financial performance.
If you have a plan to leave assets for your next generation, Whole Life insurance can be an effective way as estate planning is available there.
Disadvantages of Term Life
There are a number of drawbacks to Term Life Insurance. Here we have pointed out its disadvantages:
The renewal rate is mostly unaffordable if you need the insurance after a level term period.
It has no cash value that you can make use of while you are alive.
Disadvantage of Whole Life Insurance
You may get two drawbacks if you go for Whole Life Insurance. These are
It is comparatively expensive than Term Life Insurance
The death benefit may get reduced if you withdraw the cash value.
Summary: Term Life vs. Whole Life Insurance
I have given a table below that will help you to know what you will get and what not in both Term Life and Whole Life Insurance.
Benefits | Term Life | Whole Life |
Premium Remains The Same | Only For Level Term Period | Yes |
The Death Benefit is Fixed | Yes | Yes |
Purchase by a Duration of Coverage | Yes | No |
Affordable | Yes | Comparatively Expensive |
Cash Value | No | Yes |
Term Life vs. Whole Life: How Much Does It Cost?
As we said, Term Life Insurance is comparatively cheaper than Whole Life Insurance because Term Life lasts for a limited time. If you are alive till the end of the term, your beneficiary won’t get any money.
On the contrary, Whole Life insurance is a bit expensive as it will last for your entire life and hold a cash value. In the table below, we have shown the [Monthly] price comparison depending on age:
Person | Age | Term Life [20 Years] | Whole Life |
Male | 30 | $31 | $569 |
Female | 30 | $24 | $513 |
Male | 40 | $49 | $879 |
Female | 40 | $41 | $799 |
Male | 50 | $133 | $1421 |
Female | 50 | $96 | $1287 |
Term vs. Whole Life Insurance: Which Is Better?
Well, in the above segments, we have discussed the definition of both Insurance policies. Besides, we have shown the advantages and disadvantages of both Term Life & Whole Life Insurance. The cost details have also been explained above.
Now, it depends on you which one will be better. In that case, you should consider a couple of things.
If you go for Term Life Insurance, you must pay bills for a certain period. So, choose a term that will protect your family even after your death.
For example, you can choose a 30-year term to return your bills on a mortgage payment.
When you die, your family may need money to maintain their normal lifestyle, so go for an amount that will consider their monthly expenses.
On the other hand, you can choose Whole Life insurance if you want to have a cash value. Other than that, the death benefit is fixed here, and the cash value grows at a fixed rate over time.
Final Thought
Term vs. Whole Life Insurance: which one is better? I think the write-up has cleared your doubt. Term Life Insurance is for a certain period of time. If you are alive till the end of the term, your beneficiary won't get any money. Besides, it has no cash value that you can withdraw or take loans using it.
On the other hand, Whole Life Insurance lasts your entire life. Your beneficiary will get money even after your death because the death benefit is fixed here. It also has a cash value, and you'll get interest at a fixed rate that you'll be able to withdraw in different ways.
If you have to go for one that will suit you according to your age, income, and family background.